Archive for Friday, July 26, 2002

Mortgage rates reach record low

July 26, 2002

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— Rates for 30-year mortgages dipped this week to the lowest level in 31 years of record keeping, helping to spur a further boom in mortgage refinancing.

Freddie Mac, the mortgage company, reported that the average interest rate on 30-year fixed-rate mortgages fell to 6.34 percent this week, down from 6.49 percent the previous week. A year ago, 30-year mortgages averaged 7.03 percent.

The mortgage company said the latest decline pushed 30-year mortgages to their lowest level since it began conducting its nationwide survey in 1971.

The previous record low level for 30-year mortgages was 6.45 percent, reached in early November.

"The current refinance boom has been going on since early 2001. While the ... boom had softened earlier this year, low interest rates the last five weeks have rekindled a stronger refinance wave not seen since last year," said Phil Colling, an economist with the Mortgage Bankers Association of America.

"At the current record low mortgage rates, it is possible that some people who had refinanced earlier at a higher rate are now refinancing again."

Low rates are helping to keep the housing market stable and leading to brisk mortgage refinancing activity, economists said. Thus far, extra cash from refinancing and rising home values have helped support consumer spending, offsetting the negative impact of the sour stock market, they said.

The average interest rate on 15-year mortgages, a popular option for refinancing, dipped to 5.76 percent this week, the lowest level since Freddie Mac began tracking these rates in 1991. That was down from 5.93 percent the week before. A year ago, 15-year mortgages averaged 6.58 percent.

On one-year adjustable-rate mortgages, lenders were asking an average initial rate of 4.31 percent, down from 4.50 percent the previous week. At this time last year, one-year ARMs averaged 5.72 percent. This week's rate was the lowest since early 1994.

Economists said heavy buying of government securities and mortgage-backed securities amid the stock market turmoil helped to push long-term rates down.

"Investors concerned with the stock market are putting more of their money into Treasuries. This, in turn, drives down the costs of borrowing," said Robert Van Order, Freddie Mac's chief international economist. "As a result, we are experiencing record-breaking low mortgage rates that are fueling yet another rush to refinance."

Van Order, however, said he doesn't expect mortgage rates to move down much lower.

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