Mortgage rates hit low for year

NEW YORK — U.S. borrowers can get the cheapest mortgages this year, thanks to worries over European debt, and that could keep homebuyers active even after the expiration of a tax credit designed to lift sales.

Mortgage rates fell to their lowest level of the year this week as yields on U.S. government securities slid, Freddie Mac said Thursday. Fixed mortgage rates tend to follow the yield of 10-year Treasury notes.

Treasury yields sank after Germany's move this week to curtail certain kinds of short-selling spooked investors, who shifted money from risky European debt to safer U.S. securities.

A side effect was lower mortgage rates.

The average rate on a 30-year fixed-rate mortgage dipped to 4.84 percent from 4.93 percent a week earlier, Freddie Mac said. It was the lowest level since mid-December, when rates averaged 4.81 percent.

"The timing is fortuitous," said Greg McBride, a senior financial analyst at Bankrate.com, "because home shoppers who rushed to sign their purchase contracts in late April to capture the tax credit are locking in their mortgage rates now."

New buyers could get a credit up to $8,000, while current owners who bought and moved into another home could get up to $6,500. Buyers had to have a signed offer by April 30 and must close by June 30.

Economists had expected home sales to flag after the credit expired.

Pava Leyrer, president of Heritage National Mortgage in Michigan, hasn't seen buyer interest wane yet. "Rates are helping them buy more," she said.

However, strict credit requirements and negative home equity threaten to sideline borrowers hoping to refinance out of unaffordable loans. Refinancing activity isn't as robust as last year, when rates dipped below 5 percent.

"Everyone who could get in already got in," said Marc Demetriou of Residential Home Funding in Bloomingdale, N.J. The remaining borrowers may not be able to refinance under the stricter credit standards or don't have enough home equity to get approved.

Could rates fall further? Yes, but that would likely be the result of further deterioration in the global economy. "Yeah, mortgage rates would drop further, but you may not have a job to qualify," Bankrate's McBride said.