Banks' mortgage rates fall below 5%
SAN FRANCISCO - The government's purchase of mortgage-backed securities is successfully helping to lower borrowing costs, with the largest US banks starting to offer home loans with fixed interest rates below 5 percent.
JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its website, Wells Fargo & Co. has an offer for 4.875 percent, and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down.
Earlier this week the Federal Reserve began purchasing $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae to help lower mortgage costs. The average US rate on a 30-year mortgage dropped for the 10th straight week to 5.01 percent, the lowest since Freddie Mac started its report in 1971, the mortgage buyer said yesterday.
The lower rates may encourage more borrowers to refinance, but after more than 2 million jobs were lost in 2008, it may not spur home buying in this second year of recession. Another reason not to buy is US apartment rents are falling, and landlords are offering concessions such as free rent to avoid higher vacancies.
The Fed's purchase program, which also includes buying $100 billion in direct debt, is intended to lower consumer rates by reducing the supply of mortgage bonds issued by Fannie, Freddie, and Ginnie. That would boost their prices and lower yields, and in turn reduce the interest rates banks charge on new mortgages to ensure that sales of the securities are profitable.
The average of 5.01 percent for the week ended yesterday is down from 5.10 percent in the previous week, according to the survey by Freddie Mac. 