4.25% 30 Year Fixed Rate
Loan Amount
Loan Type

Program Rate APR
30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
5/1 ARM 3.125 % 0.7 to 1
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10/3 Mortgage Rate and Housing Update

The Federal Reserve’s latest iteration of low-rate policy has already started to bear fruit. Operation Twist, an intended program to sell short-term Treasurys and buy long-term Treasurys, has as its stated goal bringing interest rates down even further and easing credit conditions. After the announcement in September, yields on short-term government bonds rose and yields on long-term bonds fell even more. The 10-year rose to touch the two percent level before falling again and the 30-year went below three percent. This new program is having a profound effect on current mortgage rates.

Freddie Mac has revealed that the 30-year fixed-rate mortgage rate fell to a record low of 4.01 percent in the week ending September 29. The 15-year rate fell to a new all-time low of 3.28 percent, the lowest level ever for the loan. Current mortgage interest rates have responded to the double punch of the central bank’s zero interest rate policy (ZIRP) and second iteration of Operation Twist. As of October 3, 2011, the rate on the 30-year fixed-rate loan had fallen to a record of 3.84 percent and the 15-year fixed-rate loan had risen back up to 3.3 percent. Downward pressure from the Federal Reserve transmitted through the yields on government bonds is responsible for this continuing trend.

In the housing sector, conditions remain extremely depressed. Despite a recent rising trend in the Case-Shiller Index, with a 0.9 percent rise month-over-month, the index continues to show downward pressure year-over-year to the tune of 4.1 percent. This is problematic for the Federal Reserve’s stated goal of providing monetary aid to the housing and mortgage markets. In fact, in addition to the purchase of long-term Treasurys, the central bank also announced it would reinvest payments from its current holdings of Treasurys into new mortgage-backed securities.

The efforts by monetary authorities to cheer up the housing sector continue to have no effect. As to the near future, next week should see current mortgage rates continue to fall or at least normalize at their new lows. Price action on the 10-year yield saw the yield move back down to 1.7 percent. This should result in additional downward pressure since the 30-year loan uses the 10-year bond as a benchmark, given that the average term for the 30-year loan is actually seven years. The housing market will continue to fall despite current mortgage interest rates because a quarter of all homeowners are in distress and another quarter have negative equity.