Mortgage refinancing booms as rates hit 30-year low

WASHINGTON -- Mortgage rates dipped this week to the lowest level in 30 years of record keeping, helping to spur a further boom in mortgage refinancing.

Rates for 30-year mortgages dropped to 6.45 percent, down from 6.56 percent the previous week, according to a nationwide survey released Thursday by Freddie Mac.

The mortgage company said the latest decline pushed 30-year mortgages to their lowest level since it began conducting its nationwide survey in 1971. It marked the 13th consecutive week that 30-year mortgages have been under 7 percent.

"This could really ignite more refinancing activity, which is already in a middle of a boom," said David Lereah, chief economist at the National Association of Realtors. "This could bring more people in."

David Wyss, chief economist at Standard & Poor's, said the 30-year rate could edge even lower in the next two months as further weak economic statistics raise the certainty that the country is in a recession.

He predicted rates could fall close to 6 percent, putting them in striking distance of the 4 percent and 5 percent levels prevalent during the 1950s and 1960s, when the government still controlled the interest rates savings and loan institutions could pay depositors.

A number of forces are behind the drop in long-term rates, economists said, including the sinking economy, which many believe is in a recession, and the indirect impact of the Federal Reserve's interest rate cuts. The most recent reduction, a half-point cut, came on Tuesday.

Another factor: the Treasury Department's decision last week to stop issuing 30-year bonds, economists said. Ditching the bond increased demand for alternative investments, including the benchmark 10-year Treasury note, which is the basis for pricing long-term mortgages. Increased demand for 10-year notes drove prices up and reduced their yields.

Fifteen-year mortgages, a popular option for refinancing, dipped to 5.94 percent this week, compared with 6.04 percent the previous week. Freddie Mac said this week's rate is the lowest since it began tracking 15-year mortgages in 1991.

A year ago, rates for 30-year mortgages averaged 7.79 percent and rates for 15-year mortgages averaged 7.44 percent.

On one-year adjustable-rate mortgages, lenders were asking an average initial rate of 5.30 percent, up from 5.26 percent from the previous week. Last year at this time, ARMs stood at 7.23 percent.

These rates do not include add-on fees known as points, which averaged around 1 percent of the loan amount for all three types of mortgages.