Home Loan Mortgage Rates

Mortgages remain surprisingly affordable now that the government's providing most of the money

The financial industry made so many bad mortgages that a $700 billion bailout may be needed to save it from collapse.

But mortgage rates are down a little since the federal government seized Fannie Mae and Freddie Mac, the two struggling companies that provide most of the money for home loans in this country.

The average 30-year, fixed-rate mortgage cost 6.32% in our most recent survey of major lenders taken Sept. 17 -- about a tenth-of-a-point less than before the purchase.

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That's about three-quarters of a point more than we were paying in January, when rates hit a four-year low, and about one-tenth of a point less than what we were paying last September.

Our extensive database of mortgage rates shows lenders offering 30-year, fixed-rate loans for as little as 5.75% with no points and fees of $1,000 or less.

Adjustable-rate mortgages aren't providing a more affordable alternative right now.

The average cost of a 5/1 ARM -- that's a loan where the initial interest rate is fixed for five years and then resets each year after that -- was 6.38% in our survey. ARMS need to be at least half-a-point cheaper than a fixed-rate loan to make them attractive.

But anytime you can get a traditional fixed-rate mortgage for 6.5% or less, you've gotten a good deal. Most consumers with good credit can do that today.

The only borrowers who can expect to pay more are those who need a lot of money -- more than $417,000 to $729,500, depending on the city.

The cost of a 30-year, fixed-rate jumbo mortgage has remained stubbornly high, at 7.58% in our latest survey.

The whole point of the federal government's Sept. 7 takeover of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) was to ensure mortgages remained affordable and widely available.

The two companies buy about 70% of the home loans made by banks and mortgage companies in this country. They keep some of that debt and sell the rest to big investors, including mutual funds and foreign governments.

But as the mortgage crisis worsened, bringing a record number of foreclosures, Fannie Mae and Freddie Mac began losing money, making investors reluctant to buy mortgages from them.

Now that the government is in charge, and explicitly guaranteeing that debt will be repaid, investors should be far more willing to buy those loans, providing lots of money for mortgages.

The seizure does not mean that lenders will suddenly stop being more demanding when they review your mortgage application, however.

We'll continue to see a return to sane underwriting practices -- something that was sorely lacking during the housing boom of the early 2000s and that led directly to the problems we're enduring today.

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