Thirty Year Mortgage Rates Hit A New Low

A Change In Mortgage Rates Is Here

A year ago, 30-year mortgages stood at 6.25 percent while rates on 15-year mortgages were at 5.98 percent. Five-year adjustable-rate mortgages averaged 6.00 percent and one-year ARMs were at 5.49 percent at this time a year ago.

Mortgage rates have plunged to levels last seen in the refinance boomlet of 2004. The benchmark 30-year fixed-rate mortgage fell 18 basis points, to 5.57 percent; according to the basis point is one-hundredth of 1 percentage point.

It was the fourth consecutive decline and the straight work that rates have been below the 6 percent level. The new rate marked the lowest point of 30-year mortgages since they averaged 5.40 percent the week of March 25, 2004.

Economists attributed the decline to further weak news on the economy combined with the biggest reduction of a key interest rate by the Federal Reserve in more than 20 years. This is a move that has raised hope the fed will be making more rate cuts as it steps up its effort to combat a threatened economic recession.

When the Federal Reserve cut the target for the federal funds rate by three-quarters of a percentage point, the action was extraordinary in both the magnitude and the time of the rate cut. Other type of mortgages also showed declines the same time.

How Will This Affect Those Desiring to Refinance Their Home?

The drop may encourage up to 7 million homeowners to apply for new mortgages, many to avoid resets of adjustable rates. Lower monthly payments would put more money in their pockets and encourage consumer spending.

An increase in mortgage refinancing will eventually be a game-changer, turning the dynamic on mortgage payments into a positive from a negative. Applications for US home mortgages jumped for a third consecutive week.

Refinancing Will Be Different This Time With Different Hurdles

Refinancing accounted for two-thirds of all applications. Homeowners will face more hurdles this time around in obtaining the loans. With tighter credit conditions we do not know how many of these applications will become loans.

If you can lower your loan to a full percentage on your mortgage, then that’s a good sign to refinance. A note of caution is due here. There will be tighter credit conditions for all to be able to refinance. These unfortunate souls fall into a number of categories.

First, millions of people have jumbo mortgages, home loans for more than $417,000. Jumbos have not yet taken back those rate gains from today’s rates. And they aren’t competitive with the rates they received a few years ago.

Second, sub prime borrowers are having trouble finding loan approvals. They can’t refinance with this situation. And finally, people who bought houses in the last three years in bubble areas, might be unable to refinance unless they have cash on hand because home values have fallen

And last, say you made a 5 percent down payment when you bought the house two years ago and owe more than the house is worth. The lender will not refinance the loan unless you have enough cash down for a payment.

As you can see the rules and possibilities to refinance have changed and it won’t be as easy for people as it has been in the past.