Mortgage Rates Hit Lowest Level Ever

The stock market might be sinking, but if you're in the market to buy or are able to refinance a home, things are looking up.

According to this week's new Primary Mortgage Market Survey (PMMS) from Freddie Mac, mortgage interest rates hit a new low this week (thanks to a bond market rout). According to Freddie Mac, mortgage rates continuing to decline with the 30-year fixed averaging 4.32 percent marking a new low for 2011, and the 15-year fixed, 5-year ARM, and 1-year ARM averaging new all-time record lows this week.

30-year fixed-rate mortgage (FRM) averaged 4.32 percent with an average 0.7 point for the week ending August 11, 2011, down from last week when it averaged 4.39 percent. Last year at this time, the 30-year FRM averaged 4.44 percent.
15-year FRM this week averaged 3.50 percent with an average 0.7 point, down from last week when it also averaged 3.54 percent. A year ago at this time, the 15-year FRM averaged 3.92 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.13 percent this week, with an average 0.5 point, down from last week when it averaged 3.18 percent. A year ago, the 5-year ARM averaged 3.56 percent.
1-year Treasury-indexed ARM averaged 2.89 percent this week with an average 0.5 point, down from last week when it averaged 3.02 percent. At this time last year, the 1-year ARM averaged 3.53 percent.

According to Frank Nothaft, Freddie Mac vice president and chief economist, traders got nervous about European debts and whether France was going to follow the U.S. and lose its AAA rating. That led investors to shift funds into U.S. Treasuries, pushing long-term yields lower.

"Further, in its August 9th Federal Open Market Committee statement, the Federal Reserve noted that economic growth so far this year had been considerably slower than it expected and that overall labor market conditions had deteriorated in recent months, leading the Committee to conclude that an exceptionally low federal funds rate should be maintained at least through mid-2013. These developments helped to ease mortgage rates lower this week," he explained.

Dan Gjeldum, a senior loan officer with Chicago-based Mortgage Services Illinois, says 30-year fixed-rate mortgages have never been priced as low as they are this week.

Gjeldum, who has nearly fifteen years of experience approving mortgages and does nearly $70 million in loan volume annually, said his company has been locking in interest rates for buyers and homeowners looking to refinance their home at 4 percent (or less!) for a 30-year fixed-rate mortgage.

Yesterday, Gjeldum locked in a buyer on the following terms: $405,000 loan, with a Chicago condo valued in the appraisal at $600,000. The interest rate was 4 percent, with a credit for all closing costs (appraisal, lender and title fees) and an escrow for property taxes. The loan's APR is an astonishing 4.028 percent.

Interestingly, the buyer had a 733 FICO score, which isn't super high. In fact, according to MyFico.com, a 733 FICO score isn't even in the top tier, which starts at 760 for some lenders, although Gjeldum says that 740 is the start of the highest tier for Fannie Mae and Freddie Mac conventional loans. If the buyer had a FICO score above 760, the interest rate could have been below 4 percent, according to today's MyFICO.com.

Gjeldum agrees. "Here's an example of how low mortgage interest rates are and what we can do. If you have a single family purchase that's closing in 30 days, and your FICO score is 740 or above, and you have escrows for taxes and insurance, the buyers would get a 3.875 percent interest rate on a 30-year fixed rate mortgage. That's an APR of 3.903 percent on a 30-year fixed-rate mortgage!"

With the same scenario, you could have chosen a 15-year mortgage at 3.375 percent (APR 3.425 percent).

"Interest rates have never been this low," he said. "It's truly amazing. Borrowers are more than willing to spend between $300 and $450 on an appraisal to figure out whether it is worthwhile to refinance."

The key to a great interest rate is having 20 percent for a down payment, or plenty of equity in your home if you're refinance. You also need to have great credit and plenty of cash on hand - and no whiff of anything suspect in your financials.

But what if you don't have at least 20 percent equity? Gjeldum says that for those owners who don't have the required loan-to-value (LTV) ratios, interest rates are so low that they can do "lender paid mortgage insurance, which consists of rolling the cost of the mortgage insurance into the interest rate and get an interest rate that is less than 4.75 percent right now."

Moreover, that kind of deal is available even if your LTV ratio goes up to 95 percent today.

One thing to keep in mind is that as interest rates drop further, the cost of buying a house drops considerably.

"Lower mortgage rates will help to maintain the high degree of home-buyer affordability in the market. The National Association of Realtors reported that its affordability index over the past three quarters has indicated the highest affordability since the inception of the index in 1970," Nothaft added.

I'm often asked when the housing crisis and interest rates will hit rock bottom. I'd have to say that I never in my twenty-three years of covering real estate thought I'd see a 30-year fixed-rate mortgage for less than 4 percent. I'm guessing that this is what the bottom looks like - and if it isn't the bottom, it's damn close.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.

Ilyce Glink

Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.

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