Mortgage rates drop sharply this week

Long-term mortgage rates tumbled this week after the Fed cut a key short-term interest rate and on news that inflation in February was weaker than expected, Freddie Mac reported today.

The average rate on 30-year fixed mortgages dropped to 5.87 percent from last week's 6.13 percent, and the average 15-year fixed rate plunged to 5.27 percent from 5.6 percent.

To qualify for these rates, borrowers must pay points, or fees that lenders charge for loan processing expressed as a percent of the loan, which this week averaged 0.5 on the 30- and 15-year loans.

"Mortgage rates fell this week as various actions were taken to improve market liquidity," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.

"Meanwhile, retail sales fell by 0.6 percent in February, contrary to the consensus forecast of a 0.2 percent increase, signaling that the condition of the economy might be weaker than previously thought," Nothaft said. "Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate by 0.75 percentage points in the most recent Federal Open Market Committee meeting."

According to Freddie Mac, five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.56 percent this week, with an average 0.9 point, down from last week's 5.58 percent. One-year Treasury-indexed ARMs averaged 5.15 percent, with an average 0.8 point, up from 5.14 percent last week.

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