Another Record Low for Mortgage Rates

NEW YORK — Mortgage interest rates hit new lows this week as both the
30-year and the 15-year fixed-rates fell, according to a weekly survey
by Freddie Mac. It was the second consecutive week that rates broke
records.

The 30-year, the most popular mortgage product, fell by 0.01
percentage points to 3.83%. Last year at this time, it stood at 4.63%.
The new lows can save borrowers $46 a month for every $100,000 borrowed.
Over a 30-year term that comes to more than $16,000.

The 15-year fixed dropped by 0.02 percentage points to 3.03%,
lowering borrowing costs to $692 a month for every $100,000 borrowed, a
$38 savings compared with a year earlier. Borrowers would pay out only
$24,565 in interest over the life of the loan.

Rates are tracking the downward trend in Treasury yields, according
to Frank Nothaft, Freddie’s chief economist, which have fallen in
response to election results in Europe and a weaker than expected U.S.
employment report.

“The economy added just 115,000 jobs, below the market consensus
forecast and less than in March,” he said. “And although the
unemployment rate declined, it reflected fewer people actively seeking
jobs.”

Mortgage rates will likely not fall much further, according to Bob
Walters, the chief economist for Quicken Loans. The low rates have
sparked refinancings, which have accounted for upwards of 70% of all
mortgage applications lately.

That flood of refinancings strain the capacities of mortgage lenders,
especially since many have exited the industry over the past few years.
When the remaining banks have trouble handling all the applications,
they raise rates to discourage any more.

That means that when Treasury yields rise again, mortgage rates will
follow at a slower rate, said Walters. Fewer homeowners will seek to
refinance their loans and the banks will be better able to handle the
lower number of applications.

“The spread between yields and rates will reduce when capacity comes into line,” he said.