This week, the mortgage rates for 30-year fixed loans fell to the lowest level since May. This has led to reduced borrowing costs for hesitant buyers. Recent signs show that the recession in the U.S. housing market may be bottoming.
According to Freddie Mac of McLean, Virginia, the average 30-year rate fell to 5.12 percent from 5.29 percent. The 15-year rate was 4.56 percent.
The fall in home prices and a government tax credit for first- time buyers is reinforcing the tepid demand. According to the Washington-based MBA, the Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 5.6 percent to 527.
This would enable a buyer with a $400,000 mortgage to save about $344 a month, under the 30-year fixed rate, as quoted by Freddie Mac today, as compared to the cost that was a year ago when the rate was 6.47 percent.
The Federal Reserve, last year, pledged to buy bonds backed by home loans, in order to encourage lower mortgage rates. It increased the size of the program to $1.25 trillion in March.
Those bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities, allowing the lenders to reduce rates on new loans while still selling the securities backed by them at a profit.
This plan led the mortgage rates to a record low 4.78%, twice in April. They were as low as this on May 28, the last time, when the 30-year rate hit 4.91 percent.
The rates started increasing in May due to the concern of investors, that higher government debt would fuel inflation. The 30-year mortgage rate climbed to 5.59 percent in the week ended June 11 and has since fallen back.
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