Current mortgage rates are reflecting odd developments in the U.S. and European bond markets. The downgrade of U.S. sovereign debt on August 2, 2011 from AAA to AA+ resulted in investors driving down bond yields even further. The 10-year Treasury bond fell to nearly 2 percent before recovering as stocks exploded upwards in the last hour of trading. Interest rates followed a similar course in all sectors of the economy. Mortgage rates also fell.

Interest rate roundup for August 4 reported downward falls for mortgage rates across all categories. Investors bought Treasury bonds and mortgage-backed securities, pushing interest rates down. The 30-year fixed rate loans were down 0.2 percent, or 20 basis points, to 4.54 percent from 4.74 percent. The 15-year fixed rate loans dropped by 15 basis points, or 0.15 percent, to 3.63 percent from 3.83 percent. Jumbo rates even fell by 13 basis points to 5.06 percent from 5.19 percent the previous week. Adjustable-rate mortgages, such as the 5/1 ARM, also fell from 3.34 percent to 3.23 percent, a drop of 11 basis points or 0.11 percent.

Consumers responded by increasing their borrowing activity 7.1 percent, of which 70 percent was refinancing, according to the Mortgage Bankers Association. In the ensuing week, current mortgage rates have dropped even further. The 30-year fixed rate loans are down to 4.12 percent, while 15-year fixed rate mortgages dropped to 3.58 percent. Jumbo rates have continued to decrease to 4.62 percent, an amazing drop of 44 basis points. The 5/1 ARM now sits at 3.18 percent, a drop of an additional 5 basis points.

On August 9, the Federal Reserve stated a continuation of zero interest rate policy (ZIRP) for almost a further two years into mid-2013. As Fed Chairman Bernanke attempts to introduce stability into monetary policy, mortgage rates face incredible downward pressure from a Fed Funds Target Rate of a mere 25 basis points, or 0.25 percent. The best mortgage rates in years are currently at hand, prompting many homeowners to refinance in an attempt to save money.

Right now, with these super-low rates, refinancing is their best option. Saving money on their payment can help them pay down additional debts and even pay off more of their mortgage balance. Now that homeowners can rest assured about the best mortgage rates for two more years, refinancing has never looked more attractive. Mortgage rates will likely continue to decrease or remain stable in the weeks ahead.