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Rates on home loans hit new record low, nudged by Powell and the Fed

Doug Whiteman
Rates on home loans hit new record low, nudged by Powell and the Fed

There they go again. A survey says mortgage rates have fallen to another new all-time low and have put homebuyers "in the buying mood" while giving homeowners more reason to refinance and save.

Low lending costs and beefed-up borrowing are exactly what Chairman Jerome Powell and the Federal Reserve want to see as they try to heave the U.S. economy out of its COVID-19 recession.

Powell last week issued a fresh warning about the risk of "longer-term damage" to the economy, and he pledged to members of Congress that the Fed would keep interest rates extremely low.

Mortgage rates plunge to new low in 50-year-old survey

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Mortgage rates plummeted last week to an average 3.13% for a 30-year fixed-rate home loan, from 3.21% a week earlier, mortgage company Freddie Mac reported on Thursday.

The new rate is the lowest ever recorded in Freddie Mac's weekly survey, which started in 1971, and it was fourth time since early March that the company announced a new all-time low.

The survey rates come with an average 0.8 point. One year ago, borrowers were landing 30-year fixed mortgages with typical rates of 3.84%.

Another, more frequent survey of lenders has been finding even lower average mortgage rates this month. Mortgage News Daily reported that 30-year rates sank to an unprecedented 2.94% on Thursday June 11.

And you think that's good? Smart mortgage comparison shoppers have been turning up rates as incredibly low as 2.5%.

How the Fed is helping push down rates

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The financial markets have been on a kind of scary thrill ride: diving one day, then rising for a couple of days before stumbling again. But mortgage rates have been more stable thanks to the Federal Reserve, says Danielle Hale, chief economist at Realtor.com.

"The Fed has adopted a cautious, supportive posture about how the economic recovery will progress. This Fed support is helping to prevent rates from rising too quickly," Hale says.

In back-to-back appearances before congressional committees last week, Fed Chairman Powell warned that there's "significant uncertainty" about how long it will take for the economy to rebound, and he indicated that the central bank will keep holding a key interest rate close to zero.

The Fed's policies are making the housing market one of the bright spots as the economy struggles to come back amid the coronavirus pandemic. Demand for mortgages to buy homes is the highest since January 2009, notes Sam Khater, Freddie Mac’s chief economist.

"Mortgage rates have hit another record low due to declining inflationary pressures, putting many homebuyers in the buying mood," Khater says.

And as for homeowners, they've been finding today's cheap mortgage rates irresistibly low. Demand for refinance loans surged 10% in the week ending June 12, and lenders were receiving more than twice as many refi applications compared to a year earlier, the Mortgage Bankers Association said Wednesday.

You're considered a good refinance candidate if you can knock your mortgage rate down by at least three-quarters of a point (0.75) and if you have a credit score of 720 or higher. Don't know your credit score? You can easily peek at it for free.

What other mortgage rates are doing

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Rates on other popular types of mortgages also fell last week, Freddie Mac says.

The average for a 15-year fixed-rate mortgage dropped to 2.58%, from 2.62% the previous week. Fifteen-year loans are a popular mortgage option for refinances. Those shorter-term home loans were averaging 3.25% one year ago.

And, rates on 5/1 adjustable-rate mortgages slipped. Those loans are commonly known as "ARMs" and have rates that are fixed for five years and then can adjust up or down every year, in sync with a benchmark interest rate.

ARMs last week were being offered at initial rates averaging 3.09%, down from 3.10% a week earlier. In mid-June 2019, the typical starter rate on those mortgages was 3.48%.