Spring Season Causes Reduced Mortgage Loan Interest Rates

Home during spring
The spring homebuying season brings low mortgage loan interest rates this week according to Freddie Mac survey results.

The average fixed mortgage rates reversed their course from last week and fell this week.

Len Kiefer, deputy chief economist at Freddie Mac, said the housing market has a strong seasonal pattern that repeats yearly.

“In the winter months, home construction slows due to weather conditions,” Kiefer told “Homebuyers typically don’t shop as much as in the winter, but realtors see increased traffic in the spring.”

During the spring and summer seasons, or Q2 and Q3, housing prices and home sales both increase rapidly.

For the week ending March 21, 2013, the 30-year fixed rate for mortgages averaged 3.54 percent with a 0.8 point average, down from last week’s short-term high of 3.63 percent.

If a borrower took out a $200,000 home loan at today’s mortgage loan interest rate of 3.54 percent, his or her monthly payment would be $902.56. After 30 years, he or she would pay a total of $324,921.60.

If a borrower took the same mortgage out one year ago when mortgage loan interest rates were 4.08 percent, they would pay $964.08 monthly, for a total cost of $347,068.80 after 30 years. Using the current mortgage loan interest rate rather than last year’s, borrowers would save $22,147.20.

In addition, the survey found the 15-year FRM averaged 2.72 percent with a 0.7 point average, down from last week when it averaged 2.79 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.61 percent with a 0.6 point, the same as last week. Finally, the 1-year Treasury-indexed ARM averaged 2.63 percent with an average 0.4 point average, down from 2.64 percent last week.

The National Association of Home Builders Index, which tracks builder confidence, decreased in February and fell from 46 to 44. The index found that reduced confidence was due to a lack of buildable land and increased material and labor costs and not a lack of buyer demand.

Frank Nothaft, vice president and chief economist at Freddie Mac, said that low and stable inflation is putting downward pressure on fixed mortgage rates.

On March 20, the Federal Reserve monetary policy committee lowered the upper end of its inflation forecast for the current year.

Although Freddie Mac cannot comment on the Federal Reserve’s decisions to lower the forecast, Kiefer said that for bankers or investors to lend out money for thirty years, which is the most common length for a home loan, they must be compensated for several factors including the “possibility that inflation will erode the real value of the mortgage loan.”

“With inflation very low, and more importantly, expected to remain low, investors demand less compensation to be willing to lend funds over 30 years. If inflation fears increase, banks and investors might well demand higher compensation in the form of higher interest rates,” Kiefer said.