Mortgage rates continue to decline
By Holden Lewis • Bankrate.com

Last week's plunge in mortgage rates led to a surge in refinance applications. And rates are even lower this week.

The benchmark 30-year fixed-rate mortgage fell 5 basis points, to 5.92 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.37 discount and origination points. One year ago, the mortgage index was 6 percent; four weeks ago, it was 6.44 percent. Rates have fallen for five straight weeks.

The benchmark 15-year fixed-rate mortgage fell 8 basis points, to 5.67 percent. The benchmark 5/1 adjustable-rate mortgage fell 13 basis points, to 6.14 percent.

Mortgage rates have had a wild ride recently. In Bankrate's weekly survey, the average rate on the 30-year fixed was 6.33 percent Nov. 19. Then, Nov. 25 the Federal Reserve announced that it intended to drive mortgage rates down by buying up to a half-trillion dollars' worth of mortgage-backed securities. Mortgage rates for borrowers with excellent credit (and plenty of equity) dipped briefly by about three-quarters of a percentage point, to around 5.5 percent, touching off a refi frenzy.

That sharp drop didn't last long, and rates bounced back part of the way within hours. The next day, Bankrate's benchmark rate stood at 5.97 percent. And this week, the benchmark rate fell back again, just a little.

Weekly national mortgage survey

Results of Bankrate.com's Dec. 3, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

Refi madness
Last week's abrupt rate drop had a predictable outcome: Applications for refinances tripled last week, after adjusting for the Thanksgiving holiday, according to the Mortgage Bankers Association. About seven in 10 mortgage applications last week were from homeowners who wanted to refinance their loans; the rest of the applicants were homebuyers. The previous week, buyers and refinancers had been split roughly 50-50.

Bob Walters, chief economist at Quicken Loans, says: "As long as rates remain at these unprecedented lows, we're likely to see this activity sustained for the remainder of the holiday season."

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Anyone with an ARM, or with a fixed rate above 6 percent, is a good candidate for refinancing, Walters says.

There might be less to this refi boomlet than it initially appears. The blogger known as Mr. Mortgage says that a lot of these refi applications are from homeowners who were in the process of refinancing and had locked at higher rates. When rates plummeted, they broke their rate locks and re-applied for new loans.

At 5.92 percent, Bankrate's benchmark rate is at its lowest since the Feb. 6 survey, when it was 5.78 percent. That dip 10 months ago was short-lived. This decline might endure. The Fed isn't buying mortgage-backed securities yet. Mortgage rates have gone down simply on the news of the Fed's plan. When the Fed starts buying sometime this month, it's possible that rates could decline even more.

Fed Chairman Ben Bernanke has hinted that the central bank plans to push mortgage rates down and keep them there. In a speech Monday, he said he was encouraged by the drop in rates. He has said that he hopes the rate drop stimulates home sales. Only a sustained drop would work that magic, because most buyers take weeks or months to find, haggle for and close on a house.