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Key mortgage rate falls to 11-month low

Wholesale prices for gasoline, food, sport utility vehicles and computers fell in October, and that sent mortgage rates down in the middle of November.

This week, the Labor Department released the Producer Price Index for October. The measure of wholesale prices showed that a theoretical basket of wholesale goods that cost $100 in September dropped to $98.40 in October -- a 1.6 percent decrease. If you exclude food and fuel items, a theoretical basket of goods cost $100 in September and $99.10 in October -- a 0.9 percent drop in the so-called core rate.

For the 12 months ending in October, core wholesale prices went up 0.6 percent -- like going from $100 to $100.60 in one year. That's low inflation. Mortgage rates, as well as bond yields and some other interest rates, fell in response.

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The benchmark 30-year, fixed-rate mortgage fell 8 basis points to 6.24 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index was 6.42 percent; four weeks ago, it was also 6.42 percent.

Weekly national mortgage survey

Results of Bankrate.com's Nov. 15, 2006, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

11-month low
Rates on 30-year mortgages haven't been lower since the last week of January, when the average was 6.17 percent. Homeowners noticed last week, as they refinanced in throngs unseen since October 2005, according to the Mortgage Bankers Association. Just a shade under half of mortgage applications were from homeowners who wanted to refinance

If they continued a trend from earlier in the year, a lot of homeowners were killing two birds with one stone, shedding their adjustable-rate mortgages ("dis-ARMing," as one mortgage banker calls the phenomenon) while using their homes as ATMs.

Cash-out refis plentiful
In the third quarter of this year, almost nine in 10 Freddie Mac-owned mortgages that were refinanced were cash-out refis, in which the new loan amount was at least 5 percent higher than the original loan balance. In other words, a typical homeowner who owed $200,000 on the house was refinancing for $210,000 or more and using the leftover cash to pay closing costs, reduce credit card debt, fix up the house, reimburse college tuition or something else.

Freddie Mac's survey was conducted from July through September, when the 30-year averaged 6.6 percent. By recent standards, that's high. Still, a lot of people refinanced, and they extracted cash when they did it.

Frank Nothaft, Freddie Mac's chief economist, explained that "the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage."

And instead of getting home equity loans or credit lines at around 8 percent, they were "turning to cash-out refinance options," Nothaft says.