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Fixed Mortgage Rates Tumble to Lowest Levels in History

December 17th, 2020 2:59 PM by Jackie A. Graves

The 30-year fixed mortgage rate, the most popular loan product, sank to its lowest level on record this week, marking the 15th historic low it has hit this year.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average fell to 2.67 percent with an average 0.7 point. (Points are fees paid to a lender equal to 1 percent of the loan amount and are in addition to the interest rate.) It was 2.71 percent a week ago and 3.73 percent a year ago.

The 30-year fixed rate has never been this low since Freddie Mac began tracking mortgage rates in 1971. It surpassed the previous low of 2.71 percent, set earlier in the month. For some context on how remarkably low rates are, since November 2018, when it was 4.94 percent, the 30-year fixed rate has fallen more than 2.25 percentage points. At the start of 2000, the 30-year average was 8.15 percent.


Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national average mortgage rates. It uses rates for high-quality borrowers with strong credit scores and large down payments. These rates are not available to every borrower.

Because the survey is based on home purchase mortgages, rates for refinances may be higher. This is especially true since the price adjustment for refinance transactions went into effect earlier this month. The adjustment is 0.5 percent of the loan amount (e.g., it is $1,500 on a $300,000 loan) and applies to all Fannie Mae and Freddie Mac refinances.

The 15-year fixed-rate average dropped to 2.21 percent with an average 0.6 point. It was 2.26 percent a week ago and 3.19 percent a year ago. The five-year adjustable-rate average remained the same at 2.79 percent with an average 0.3 point. It was 3.36 percent a year ago.

“Mortgage rate dynamics over the past several months have been less dependent on economic data and more on policy-related matters — both fiscal and monetary — as well as epidemiological developments,” said Matthew Speakman, a Zillow economist. “A new spending package may place some upward pressure on mortgage rates, particularly if the package contains more than has been reportedly debated. Investors have expected the spending package for a while now, meaning it’s likely that most of their reaction has already been priced in. Overall, mortgage rates remain very low and are unlikely to shift unless a blockbuster spending package is passed before the end of the year.”

The Federal Reserve met this week for the final time this year. As expected, the central bank did not raise the federal funds rate.

“The Federal Reserve reaffirmed [its] commitment to keep short-term rates at zero for the foreseeable future, noting the slowing pace of economic growth due to the intensification of the pandemic,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “We fully expect that they will maintain rates at the zero-lower bound for years.”


But most observers were more interested in learning what the Fed intended to do, if anything, about its bond-buying program. For the past several months, the Federal Reserve has been buying mortgage-backed securities — or MBS as they are often known — which are bundles of mortgages sold on a secondary market. When a borrower takes out a loan such as a 30-year fixed-rate mortgage, a lender often bundles that loan with other loans into an MBS and then sells it to investors. The Fed’s purchase of MBS has helped drive down mortgage rates.

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