Fixed mortgage rates dropped to their lowest levels since mid-July this past week, following the Federal Reserve's decision to maintain its current level of economic stimulus for the time being.

Average rates on 30-year fixed-rate mortgages fell to 4.32 percent this week, according to today's Freddie Mac rate survey, down from 4.50 percent last week. The average on 15-year fixed-rate mortgages dropped to 3.37 percent, down from 3.54 percent last week.

The drop in 30-year rates would represent a savings of $318 a year on a $250,000 mortgage.

Initial rates on adjustable-rate mortgages showed a much smaller decline, with the average on 5-year Treasury indexed ARMs dropping to 3.07 percent, down from 3.11 percent last week.

Eases bite of home price increases

"Mortgage rates fell following the Federal Reserve announcement that it will maintain its bond buying stimulus," said Frank Nothaft, Freddie Mac chief economist. "These low rates should somewhat offset the house price gains seen the last number of months and keep housing affordability elevated."

Nothaft noted that the recently released S&P/Case-Shiller index of home prices in 20 U.S. metropolitan areas showed an annual increase of 12.4 percent for the 12 months ending in July, the largest annual increase the index has seen since early 2006. Four of the 20 cities saw home values increase more than 20 percent over the preceding 12 months.

"These increases in home values have also increased homeowner wealth," Nothaft said. "For example, homeowners experienced an aggregate $1.4 trillion increase in equity in their homes over the first half of this year which contributed to the overall $4.2 trillion gain in household net worth."

Those increases may help soften the impact of higher interest rates for some homeowners who are seeking to refinance, as increased home equity can enable them to qualify for a lower rate than they might receive with less equity.

The increased home values should also give a boost to home equity lending, enabling more borrowers to qualify for such loans that could do so last year.

Published on September 26, 2013