Mortgage Interest Rates Drop

Worried about interest rates? If you're looking for a home loan, you can breath a little sigh of relief: after inching up in recent weeks, average interest rates fell back to their near-historic lows.

Average interest rates for 30-year home loans slid to 5.07 percent (plus 0.6 percent in fees) for the week ending April 15. That's down from an average of 5.21 percent the week before, according to Freddie Mac's Primary Mortgage Market Survey.

"After rising for four consecutive weeks, mortgage rates eased back to where they were two weeks ago and still remain historically low," said Frank Nothaft, Freddie Mac vice president and chief economist.
Earlier this year economists feared that interest rates would rise as the federal government stopped pumping money into home mortgages. In March, the Federal Reserve ended its program that bought $1.25 trillion in Fannie Mae and Freddie Mac mortgage-backed securities, according to coverage in Mortgage News Daily.

As the program ended, experts kept saying that it was finishing smoothly and that interest rates would not be pushed higher. Despite their assurances, it was disturbing to watch interest rates spike last week -- and a relief to see rates slide back toward 5 percent.

Why did interest rates rise and fall so sharply?

Average mortgage rates tend to float a point or two higher than the yield on 10-year Treasury bonds. That's because Treasury bonds represent to most large investors the perfectly safe long-term investment. No investor seriously thinks the U.S. government is about to default -- if they did they'd probably be investing in guns and canned food instead. Bonds backed by fixed-rate home loans to strong borrowers are slightly riskier, so the yield demanded by investors and the interest rates for borrowers is that much higher.

Treasury bond yields spiked for the first week in April, peaking at nearly 4 percent on April 5. By April 15, yields were back down around 3.85 percent, and interest rates dropped accordingly.
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