30-year fixed mortgage drops below 6 percent
By Carlos Torres
Bloomberg News Service
WASHINGTON The average rate on a 30-year fixed mortgage fell this week to the lowest level on record and is likely to remain low, according to Freddie Mac, the No. 2 buyer of U.S. mortgages.
The 30-year rate fell to 5.94 percent in the week that ended yesterday, the lowest since Freddie Mac started keeping records in 1971, from 6.11 percent last week.
The average rate on one-year adjustable mortgages fell to 4.09 percent, the lowest since record-keeping started in 1984, from 4.15 percent.
Signs that economic growth has slowed along with expectations that inflation is subdued are likely to keep mortgage rates near these levels, Freddie Mac said.
"At this point we don't foresee any dramatic movement in rates one way or the other," said Frank Nothaft, chief economist at Freddie Mac.
Rates fell after Federal Reserve policy-makers lowered their target for the overnight benchmark interest rate by a half percentage point, a larger-than-expected reduction, last week. At 1.25 percent, the rate is the lowest since 1961.
Lower mortgage rates are helping fuel a new wave of refinancing. The cash homeowners are taking out of their equity during refinancing is helping to prop up consumer spending, which accounts for more than two-thirds of the economy.
"It is important to recognize that the extraction of equity from homes has been a significant support to consumption during a period when other asset prices were declining sharply," said Fed Chairman Alan Greenspan during testimony before Congress yesterday.
"Were it not for this phenomenon, economic activity would have been notably weaker in the wake of the decline in the value of household financial assets," Greenspan said.
The rate on a 15-year mortgage, a popular refinancing option, fell to 5.32 percent this week, also the lowest on record, according to Freddie Mac.
This week's 30-year fixed mortgage rate from Freddie Mac puts the average monthly payment on a $100,000 loan, including principal and interest with 1 point, at $595.70, down from $632.73 at the same time last year, when the rate was 6.51 percent.