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Rates for Thirty-Year Mortgages Drop to Record Low

Posted on 26 Mar 2009

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U.S. mortgage rates fell to record lows again this week, feeding demand for refinancings, as a result of government efforts to reduce rates to levels that will help the hard-hit housing market begin to recover.

Interest rates on 30-year fixed-rate mortgages averaged 4.85 percent for the week ending March 26, down from the previous week's 4.98 percent. The rate broke the previous record low of 4.96 percent set 10 weeks earlier, according to Freddie Mac.

The 30-year fixed-rate mortgage is the lowest since Freddie Mac started the Primary Mortgage Market Survey in 1971.

"The Federal Reserve's announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop and mortgage rates followed," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

Low mortgage rates have spurred a surge in home refinancing loans, and resulting lower monthly payments should provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.

But the precipitous drop in mortgage rates has made only a marginal impact on demand for loans to purchase a home, offering little sign of a recovery from the worst housing downturn since the Great Depression.

"Everything helps when it comes to the U.S. housing market and lower interest rates on mortgages should make it easier for buyers to enter the market and absorb supply, which is still quite high," said Lawrence J. White, professor of economics at New York University's Stern School of Business.

"For existing homeowners who are able to refinance, it should help prevent foreclosures and free up cash," he said.