Mortgage Rates Hit Six Month Low On Economic Dip

May 21st, 2010

As uncertain economic reports and European woes continue, mortgage rates have benefitted: mortgage rates are at levels not seen since November 2009. Economic data shows a hiccup in economic recovery, while Europe is still having problems–both supporting continued low rates for the time being. Many home owners are using mortgage refinance calculators to evaluate potential savings as mortgage rates continue their three week decline.

Mortgage Rates Drop, Refinance Applications Up

In its Weekly Mortgage Applications Survey for the week of May 14, 2010, the Mortgage Bankers Association (MBA) announced that the 30-year fixed mortgage rate at 80% loan-to-value averaged 4.83%–down from the prior week’s rate of 4.96%. Origination costs remained somewhat steady at 1.08 points versus .91 points the prior week. This is the lowest weekly average mortgage rate reported by the MBA since November 2009–and rates have since continued to decline.

The big news from the MBA was the surge of refinance applications and the sharp decline in purchase applications for the week. With an increase of 14.5% in refinance applications from the prior week, refinance applications comprised more than two-thirds (68.1%) of total applications. Purchase applications, after climbing several weeks in a row leading up to the deadline for the home buyers tax credit, dropped over 27% and the number of purchase applications was 24% lower than the same period one year ago. Regarding the drop in purchase applications, the MBA release stated, “This is the lowest Purchase Index observed in the survey since May of 1997.”

If you have been sitting on the fence wondering when to purchase a new home, now may be your time. Use a free mortgage prequalification calculator to determine what terms you need to be able to afford to purchase a home. If the number of purchase mortgage applications continues to decline, expect lenders to begin offering pricing incentives again for purchase mortgages.

U.S. Economic Recovery Dips

The US Department of Labor (DOL) Unemployment Insurance Weekly Claims Report shows that the number of Americans filing for first time unemployment insurance jumped to 474,000 claims for the week of May 15, 2010. After a slow decline of 22.5% over the last twelve months, this 6% jump in unemployment is likely only a brief anomaly–though only time will truly tell, particularly in the event of a much-rumored ‘double dip recession.’ Although ongoing decreases in the unemployment rate signal a strengthening recovery of the US economy, such improvements will eventually drive mortgage rates higher.

The DOL also reported for April 2010 that inflation indicators including the Consumer Price Index (CPI) and the Producer Price Index (PPI) both dipped slightly after a slow rise of 2.2% and 5.5% over the last twelve months, respectively. Accelerating inflation prompts higher interest rates, while lower inflation facilitates lower interest rates; this latest data suggests that mortgage rates should continue at relatively very low levels, but continue to slowly rise over time as the economy improves.

European Crisis Effects Continue

Europe’s financial crisis continues to leave it relatively unsettled socially and politically, especially in Greece.

Despite the Greek government’s acceptance of a plan to refinance its public debts using funds committed by other European governments led by Germany, the Greek populace is very upset with the strict conditions of that refinancing.In fact, so are German and French taxpayers, who are ultimately the source of loan funds to Greece.The situation is straining the European politicoeconomic alliance, and is now making investors around the world somewhat nervous.

This has led to increased international demand for US dollars including United States Treasury securities, which are seen as more stable than Euro-denominated holdings in spite of recent record American government spending. This demand is keeping US interest rates low, making US government borrowing and private lending such as mortgage loans cheaper.

Expect this unease with Europe to persist for at least the next few months, though the downward pressure on US rates should eventually and increasingly ease.

How To Use Current Circumstances To Your Benefit

However, whenever mortgage rates once again begin to climb in earnest, they may seem to climb much faster than they originally dropped. Now may be the perfect time for you to use an early payoff calculator, to determine how much money you can save in the future by leveraging today’s lower mortgage rates. Or use a mortgage refinance calculator to determine how much money you can save every month to pay off other debt, save for your children’s college costs, or put away for retirement.

If your plans might include a mortgage, now may be a great time to be in the market for a new mortgage, given the continuing, historically low mortgage rates now available.

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