Mortgage Rates Still Falling

?The latest numbers from Freddie Mac show that interest rates on both 30- and 15-year fixed-rate mortgages hit record lows as the yields from Treasury bonds fell at the same time.

The latest weekly Freddie Mac rate survey is out and it chronicles another week of record low mortgage rates in the U.S. The interest rates on fixed-rate mortgages was also down again for the week, with the rates for both 30- and 15-year fixed loans hitting new record lows. According to the survey by Freddie Mac it was the second consecutive week that mortgage rates have broken records and at the same time, the rates for a 30-year fixed loan dropped by 0.01 percentage points to 3.83%.

Just one year ago at this time the rate was 4.63%, and at the current rate borrowers can save $46 a month for every $100,000 borrowed and when calculated over the whole 30-year term, it translates to a savings of over $16,000. At the same time, the interest rates on 15-year fixed loans also reached a record low at 3.05 percent, coming in under last week’s record by .02 percent. The new numbers represent historic lows and are the lowest rates ever reported by Freddie Mac, which started tracking 30-year loan rates back in 1971 and the 15-year rates in 1990. The interest rates on 5-year Treasury indexed adjustable-rate mortgages also fell a bit from 2.85 percent to 2.81 percent, but did not equal the record low rate of 2.78 percent set in April.

Economists at Freddie Mac say the current downward trend in Treasury yields is due in part to recent election results in Europe and another weaker than expected U.S. employment report. Chief economist Frank Nothaft said “The economy added just 115,000 jobs, below the market consensus forecast and less than in March, and although the unemployment rate declined, it reflected fewer people actively seeking jobs." Some economists warn that although the low rates have encouraged a lot of new refinancing that has accounted for 70% of all recent mortgage applications, it is unlikely that the rates will fall much lower due to the flood of refinancings that have strained the capacities of most big mortgage lenders, and when the remaining banks run into trouble handling the load, they will predictably raise their rates to discourage more refinancing.

Overall, the situation translates to a balance when the Treasury yields begin to rise again, the mortgage rates will follow behind at a much slower rate. Fewer borrowers will want to refinance their existing loans and the banks will be better able to handle the lower number of applications as a result. This leads most economists to believe that the spread between yields and rates will decrease when that capacity comes into line. The final result is that when the yields on so-called “safe investments” like Treasury bonds begin to drop off, the rates on mortgage loans will follow suit.