Mortgage Rates Approach 5 Percent Mark

Applications for new mortgages jumped sharply last week, as 30-year fixed interest rates dropped toward the magic 5 percent level, according to the weekly survey by the Mortgage Bankers Association.

The average interest rate on 30-year fixed mortgages declined to 5.02 percent for the week ending Sept. 4, down from 5.15 percent the week before. It's the lowest the 30-year rate has been since May 22, toward the tail end of last spring's refinancing boom that was triggered by a two-month run of sub-five percent rates.

Applications to refinance existing mortgages jumped 22.5 percent, the biggest weekly increase since interest rates dropped abruptly in mid-March following the Federal Reserve's announcement of aggressive actions to free up credit. Applications for mortgages to purchase a home rose 9.5 percent, a surprisingly strong increase giving the lead time needed to find and make an offer on a home.

Overall, mortgage applications of all types were up 17.0 percent, and were running 64.5 percent higher than the same week one year ago.

The four-week moving averages for all categories were up as well. The moving average is considered a more reliable measure of ongoing trends because it flattens out week-to-week variability. The four-week average for all mortgage types was up 7.0 percent; for mortgage refinances was up 9.7 percent and for home purchase mortgages was up 3.3 percent, all on a seasonally adjusted basis.

Mortgage refinances made up 59.8 percent of all mortgage applications, up 3.2 percentage points from the week before. Adjustable rate mortgages remained a minor portion of the market compared to previous years, making up 5.8 percent of all mortgage applications, up from 5.6 percent the week before.

Rates on 15-year fixed rate mortgages dropped to 4.45 percent, down from 4.57 percent the week before. The rate assumes an 80 percent loan to value averaging 1.13 points paid, including origination fees. The 30-year rate averages 1.23 points paid.

The MBA survey covers 50 percent of all U.S. mortgage loan applications. Due to differences in methodology, it typically runs between 0.2 percentage points to half a percent below other major national surveys, including the Freddie Mac and Bankrate weekly surveys.