Average rate on 15-year mortgage dips below 4%

What is bad for the global economy (unrest in the Middle East and the earthquake in Japan) is good for interest rates.

Fixed mortgage rates tumbled and the 15-year loan dipped below 4% for the first time in three months last week then increased to 4.04% this week. Rates followed the yield on U.S. Treasury bonds, which fell on worries that the crisis in Japan could slow economic growth.

Freddie Mac said last Tuesday the average rate on the 15-year fixed mortgage, a popular refinance option, dropped to 3.97% from 4.15%. The last time the rate was below 4% was in mid-December. It reached 3.57% in November, the lowest level on records dating back to 1991.

The average rate on the 30-year fixed mortgage fell to 4.76% last week from 4.88% the previous week the rate then increased to 4.81% this week. It hit a 40-year low of 4.17% in November.

Mortgage rates tend to track the yield on the 10-year Treasury note. Those yields have tumbled as investors sought safer investments.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

I know buyers want to buy when the real estate market hits bottom, but you should not be just looking at prices; you need to be looking at interest rates too since these will affect you if you plan to get a loan. A 5% decrease in price is more than offset by a 0.5% increase in the interest rate. For example, if you borrowed $100,000 at 5% interest rate on a 30yr fixed loan, your payments will be about $536. Now if you borrowed $95,000 at 5.5% interest rate on a 30yr fixed loan, your payments will be about $539.

What is more likely to happen: a decrease in price of 5% or an increase of interest rates of 0.5%?

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