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30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
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Mortgage Rate Roller Coaster

The past week has been a strange one for current mortgage rates. The ride through the markets has been up and down. Signs of relief for the housing market may be marred by further waves of price reductions. So far, record-low mortgage rates are not tempting would-be homeowners to take the plunge. Despite the best mortgage rates in generations, housing prices are still stuck in the doldrums. The Case-Shiller 20-city index registered a decline of minus 4.11 percent for the month of July. An increase in foreclosures of 14 percent in the third quarter suggest a thaw is coming.

Overall, mortgage rates rose between October 7 and October 17, 2011. The 30-year fixed-rate loan started the week at 4.09 percent and ended it at 4.13 for a total gain of 0.04 percent or four basis points. The 15-year fixed-rate loan actually fell, starting at 3.52 percent and ending at 3.44 percent, a total loss of 0.08 percent or eight basis points. This discrepancy is explained by the fact that the 15-year fixed-rate loan and the 30-year fixed rate loan both experienced rate declines on October 13, but the 15-year loan’s decline was greater. The 30-year declined by 0.08 percent but the 15-year declined by 0.14 percent, erasing much of the week’s gains.

The bond market and mortgage-backed securities (MBS) market play large roles in rate movements like these. Current mortgage rates are influenced by the behavior of yields on government bonds and MBS. As prices rise, yields fall. Greater investor demand for Treasury securities and MBS will transmit lower yields through the mortgage market. Obviously, judging from the more severe decline in the 15-year rate, investors favored the security made from that mortgage more than the security made from the 30-year mortgage.

The 10-year Treasury note is used as a benchmark, and it rose 0.08 percent through last week. This put upward pressure on the 30-year rate, which also puts pressure on the 15-year rate. The selling action in the 15-year rate counteracted it.

Looking ahead to the future, the 10-year note may have experienced yield increases week-over-week, but the yield declined compared to what it was on Friday, October 14. The 10-year yield was at 2.25, but on Monday it had declined to 2.15, a drop of 10 basis points. Borrowers looking for the best mortgage rates are faced with the bargain of a lifetime as rates hover near all-time lows.