Mortgage rates drop, snapping a 3-week climb

Freddie Mac says 30-year fixed rate fell to 6.35% as the Federal Reserve indicates that inflation should moderate this year.

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By Catherine Clifford, staff writer

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NEW YORK ( -- Rates on 30-year fixed mortgages fell for the first time in three weeks after the Federal Reserve said last week that it expects inflation to level off, according to mortgage backer Freddie Mac.

Freddie Mac (FRE, Fortune 500) said that 30-year fixed-rate mortgages averaged 6.35% with an average 0.6 point in the week ending Thursday, down from 6.45% last week. Last year at this time, the 30-year loan averaged 6.63%.

"Mortgage rates reversed their three-week rise, falling this week after the release of the latest Federal Reserve's policy statement that it expects inflation to moderate later this year," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement. That led to market participants lowering their expectations about future rate hikes, he explained.

Last week, the Federal Reserve left its key short-term interest rate unchanged at 2%. For the previous nine months, however, the Fed had cut interest rates seven times. In the written statement released by the central bank at the time of the announcement, the Fed said it expects inflationary pressures to ease later this year, although it remains concerned about increasing oil and commodity prices.

"The little downturn should lend some encouragement to borrowers who are in progress or looking to refinance," said Keith Gumbinger, vice president of, an online publisher of consumer loan information. Even with all of the movements up and down in recent weeks and months, mortgage rates have stayed consistently between 6 and 6.5%, says Gumbinger.

"As long as the economy remains weak and the tug-of-war we are in between recessionary concerns and inflation concerns, the likelihood is that we will remain range bound," said Gumbinger.

Greg McBride, senior financial analyst, echoed the sentiment. "We could see rates remain in a range until there is greater certainty about the health of the economy and the inflation outlook," he said.

The 15-year fixed rate mortgage this week averaged 5.92% with an average 0.6 point, down from last week when it averaged 6.04%. A year ago at this time, the 15-year fixed rate mortgage averaged 6.30%.

Five-year adjustable-rate mortgages (ARMs) averaged 5.78% this week, with an average 0.7 point, down from last week when it averaged 5.99%. A year ago, the 5-year ARM averaged 6.29%.

One-year ARMs averaged 5.17% this week with an average 0.6 point, down from last week when it was 5.27%. At this time last year, the 1-year ARM averaged 5.71%.

A point, or "discount point," can be purchased at the time of closing to decrease the mortgage rate. Each point costs 1% of the loan amount and each point that a borrower purchases lowers the the loan interest rate.

The Labor Department reported a net loss of 62,000 jobs in the month. The June job loses brought the number of job loses to 438,000 by the U.S. economy in 2008, raising fresh concerns about the weakness of the economy. Given the recent economic data, "homebuyers looking to get out into the marketplace should take advantage of these dips," said Gumbinger.

"If there is a dip - an improvement in interest rates - that makes it a good time to go sign up for a deal," he said. "Don't wait for interest rates to be significantly lower - because the odds don't favor that."

At the same time, mortgage rates right now are not high enough that they are making or breaking a homebuyer's decision about whether to purchase a home. "Mortgage rates are still very low. If you can't afford a house with a fixed mortgage rate of 6.5%, you can't afford the house," said McBride. To top of page

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