By Steve Kerch, CBS.MarketWatch.com
Aug. 12, 2004

CHICAGO (CBS.MW) -- U.S. fixed-rate mortgages fell significantly in the week ending Thursday as interest rates tumbled in the bond market before the Federal Reserve raised its key lending rate.

The national average interest rate on the benchmark 30-year loan dropped to 5.85 percent from 5.99 percent a week earlier, Freddie Mac said. That's the lowest since it was 5.79 percent on April 8.

The 15-year mortgage, a popular refinancing choice, fell to 5.24 percent from 5.4 percent one week earlier. One-year Treasury-indexed adjustable-rate loans, which are more sensitive to the short-term rates that Fed policy affects, were flat at 4.08 percent.

All three loans required the payment of an average 0.6 point to achieve the rate; a point is 1 percent of the loan amount, charged as prepaid interest.

So far, the reprieve on mortgage rates has not touched off a rush to the mortgage office. The Mortgage Bankers Association said this week that its index of mortgage applications for the week ending Aug. 6 dipped 0.7 percent.

Applications for mortgages to buy homes fell 2.7 percent on a seasonally adjusted basis, but refinancing applications rose 2.5 percent.

The refinance share of mortgage activity increased to 37.2 percent of total applications from 35.8 percent the previous week. The adjustable-rate mortgage share of activity increased to 34.2 percent of total applications from 33.5 percent.

The average interest rate for 30-year fixed-rate mortgages in the MBA survey decreased to 5.8 percent from 5.97 percent one week earlier, with points decreasing to 1.24 from 1.48 (including the origination fee) for 80 percent loan-to-value ratio loans. The MBA survey covers about half the U.S. residential market.

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