Holiday gift: Mortgage rates continue their slide

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Home buyers and families seeking to refinance a high-rate mortgage are receiving a holiday gift: the lowest home-loan interest rates since their grandparents were borrowers, experts say.

In late November, autumn mortgage hunters saw benchmark 30-year fixed-rate loans hit an average of 3.31 percent, the lowest level in more than six decades, reported Freddie Mac. Last year at this time, the 30-year fixed loans averaged 3.98 percent.

Freddie Mac’s Primary Mortgage Market Survey reported in late November that 15-year fixed-rate loans averaged only 2.63 percent. A year ago, the 15-year fixed-loan average was 3.30 percent.

Freddie Mac’s Primary Mortgage Market Survey reported in late November that 15-year fixed-rate loans averaged only 2.63 percent. A year ago, the 15-year fixed-loan average was 3.30 percent.

“Fixed mortgage rates continued to ease to record lows and this should help the ongoing housing recovery,” said Frank Nothaft, Freddie Mac vice president and chief economist.

New-home construction rose 3.6 percent in October to the strongest pace since July of 2008, Nothaft noted. “In November, home-builder confidence rose for the sixth straight month to its highest reading since June of 2006 according to the NAHB/Wells Fargo Housing Market Index,” Nothaft said.

“And existing home sales increased 2.1 percent in October to an annualized pace of 4.79 million, exceeding the market consensus forecast,” he noted.

A spot check of Chicago-area lenders in late-November showed that several were quoting between 3.125 percent and 3.250 percent on 30-year loans with down payments ranging from 5 percent to 25 percent.

“On average, borrowers who refinanced in the third-quarter of 2012 reduced their interest rate by about 1.7 percentage points,” Nothaft said.

This savings of about 31 percent in interest rate is the largest percent reduction recorded in the 27 years of Freddie Mac’s economic analysis, he said. On a $200,000 loan, that translates into saving about $3,500 in interest over the next 12 months.

However, the wacky world of Mortgageland is unpredictable and volatile. Since 1994, through a series of dips and up-ticks, the average rates on 30-year mortgages have bounced from a high of 8.4 percent to the current rock-bottom 3.31 percent.

Few of today’s novice borrowers remember that only 12 years ago in August of 1999, lenders were quoting 8.15 percent on a 30-year fixed mortgage. By June of 2003, the benchmark 30-year fixed rate average had plummeted to 5.21 percent.

However, beginning in mid-2004, the Federal Reserve Board methodically raised short-term interest rates 17 times over a period of two years. The series of quarter-point interest-rate hikes were designed to make sure inflationary pressures remained under control.

The Fed paused its rate-tightening campaign in June of 2006, and in mid-July the average rate peaked at a lofty 6.74 percent.

Rates have seesawed throughout the recent Great Recession. To really appreciate today’s historically low rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging in the early 1980s.

According to Freddie Mac, benchmark 30-year fixed-rate mortgage rates peaked at a whopping 18.45 percent in October of 1981 during the Great Recession of the 1980s.

Rates fell below 10 percent in April of 1986, and then bounced in the 9-percent to 10-percent range during the balance of the 1980s.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates were a very affordable 5.81 percent to 5.94 percent between 1963 and 1965.

In 1966 and 1967, borrowers paid an average of 6.3 percent to 6.4 percent. Rates last dipped below 6.5 percent in January of 1968, when the national average hit 6.41 percent. In Illinois, between 1971 and 1977, the now-defunct state usury law held rates in the 7.6-percent to 9-percent range.

Don DeBat’s weekly real estate column is syndicated by DeBat Media Services.