Posted on: Friday, September 24, 2004

Mortgage rates fall despite Fed action

By Jeannine Aversa
Associated Press

WASHINGTON — Mortgage rates around the country dropped this week, with 30-year mortgages sinking to their lowest level in five months.

Freddie Mac, in its weekly survey released yesterday, reported that rates on 30-year, fixed-rate mortgages declined to 5.70 percent for the week ending yesterday. That was down from 5.75 percent last week and marked the best showing since rates on 30-year mortgages averaged 5.52 percent at the beginning of April.

Rates on 30-year mortgages hit a high this year of 6.34 percent the week of May 13. Rates have slowly drifted downward as economic activity cooled in the late spring and early summer and inflation fears receded.

For 15-year fixed-rate mortgages, a popular option for refinancing, rates decreased this week to 5.10 percent from 5.13 percent last week. Rates on one-year adjustable rate mortgages dipped to 4 percent, compared with 4.03 percent the previous week.

Mortgages rates have remained restrained even as the Federal Reserve has raised a key short-term interest rate. The Fed on Tuesday bumped up the target for its federal funds rate to 1.75 percent, marking the third rate increase since June. The funds rate is the interest banks charge each other on overnight loans.

Economists say the Fed needs to slowly raise the funds rate from extraordinarily low levels to more normal levels to protect against inflation becoming a problem in the future.

A year ago, rates on 30-year mortgages averaged 6.01 percent, with 15-year mortgages at 5.30 percent and one-year ARMs at 3.81 percent.