Rates on 30-year mortgages fell to a record low for the third straight week and borrowers took advantage of the drop, sending new applications soaring.
With the Federal Reserve on the verge of pouring hundreds of billions of dollars into the devastated U.S. housing market, mortgage rates have plunged to the lowest level since Freddie Mac started tracking the data in April 1971.
Low rates are a great opportunity for borrowers with solid credit scores and equity in their homes. These conditions are likely to persist well into the year. Lending standards are still high and consumers with damaged credit reports will have to improve their credit to capitalize on these conditions.
Freddie Mac reported that average rates on 30-year fixed-rate mortgages dropped to 5.1 percent last week, down from the previous record of 5.14 percent set a week earlier. It was the ninth straight weekly drop.
Mortgage rates have plunged by about 1.3 percentage points since late October. For a borrower taking out a $200,000 loan, that means a savings of more than $170 in monthly payments, according to Frank Nothaft, chief economist for Freddie Mac.
Meanwhile, mortgage applications last week remained at the highest level in more than five years, the Mortgage Bankers Association said. More than 80 percent of applications came from borrowers looking to refinance at more-affordable rates.
Interest rates have plunged since the Federal Reserve pledged last month to buy up mortgage-backed securities in an effort to bolster the long-suffering housing market. The Fed, starting early next month, will buy up to $500 billion in securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.
Rates may still fall further this year, being that mortgage rates are still high when compared with yields on long-term Treasury debt.
A lot depends on how the Fed and Treasury Department follow through with their commitment to buy a significant portion of the new mortgage securities issued by Fannie and Freddie in 2009.
The average rate on a 15-year fixed-rate mortgage dropped to 4.83 percent last week, the lowest point since March 2004. That rate was 4.91 percent the previous week, Freddie Mac said. Rates on five-year adjustable-rate mortgages rose to 5.57 percent from 5.49 percent while rates on one-year adjustable-rate mortgages fell to 4.85 percent from 4.95 percent.
Credit Applications Soaring As Mortgage Rates Plunge