May 25, 2024

30 Year Mortgage Rates At 4.5% – Is 3.5% Possible?

How Low Can Mortgage Rates Get?

According to Freddie Mac, the average 30 year fixed rate mortgage dropped for the 10th consecutive week to a new low of 5.01%.   This is the lowest rate reported by Freddie Mac since they began keeping track in 1971.

Rates have moved sharply lower over the past two weeks to all time lows despite the fact that the 10 year treasury bond did not move to new lows.  The traditional rate differential between the 10 year treasury and the 30 year fixed rate mortgage has disappeared due to the mortgage crisis and other factors.   Risk is now priced higher across all credit markets, including mortgage backed securities (MBS).

The Federal Reserve’s direct purchases of mortgage backed securities initiated late last year was successful in its goal of lowering mortgage rates.   The Fed’s direct purchases of MBS has stabilized the mortgage market and lowered rates.  There are arguments being put forth that due to the Fed’s intervention, mortgage rates have artificial price support.  Nonetheless, if the historical yield spread between the bond and the 30 year mortgage is re-established, we may see a 30 year fixed rate in the 3.5% range.  Something to think about for those contemplating a mortgage refinance.

Last week, a borrower with excellent credit, necessary income and home equity was able to obtain a par rate of 4.5%.   The question of whether the Fed is manipulating mortgage pricing at this point or how long such price support can last is somewhat irrelevant.  The major fact to keep in mind is that the Fed appears to be relentless in its campaign to drive down mortgage rates.   If the Fed can stabilize the MBS market we may be looking at mortgages rates in a range we never thought possible a short time ago.

30 year fixed rate mortgages in the mid 3% range would cause a huge refinance surge.  Keep in mind that over the past five years, homeowners had multiple opportunities to refinance in the low 5% range.  Unless the borrower is taking cash out, it usually does not pay to refinance for less than a one percentage point reduction.   At 3.5% rates, it would make sense for almost every homeowner with a mortgage to refinance again.


  1. Gene Landfather says

    I just saw my possible re-fi rate jump from 4.5% to nearly 5% in just 4 days. (with total loan fees of $6,300 including 1 point) I’m an A++credit risk looking at a 70%-75% loan to value, and not drawing any cash out. One of many this article is addressing. I don’t know whether to go to the bathroom or go blind! I’m guessing I’m included in a very large demographic in exactly the same position. AND of course don’t want a good opportunity to get away from me. I hate to think my hard work over the years is in some way holding me back by being lumped in with those who have been a bit less responsible with their finances. It would be nice if there was a crystal ball we could all peer into. BOOM OVER??? IS THERE A 3.5%-4% IN OUR FUTURE???? Are MBS’s the indicators I should be watching?

  2. Bill Zielinski says

    Pricing is chaotic in the mortgage market right now due to the financial crisis. There are good arguments why rates may go down as well as up.
    Since it is expensive to refinance, I would carefully look at how long it takes to recover your closing cost.
    An A+ customer like yourself, paying 1 point should be able to get 4.75% today. When I quote rates, they are “par” rates which means that you usually need to pay points to get that rate. I am not sure of your loan amount but $6300 for closing costs seems high, unless you are including escrows in that amount. (escrows are not true closing costs).

    Yes, we are all paying for the cost of those who have been less responsible, which includes both the banks and the borrowers.

  3. Maybe. I thought the 30 years-fixed rate mortgage will below 4% sometime in 2009.

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