Refinancing Surges After Fed Action Drops Rates

New York, NY, Dec. 1, 2008--Last week's sharp drop in mortgage rates is prompting a flurry of refinancing activity.

Average rates on 30-year fixed-rate mortgages fell to 5.97%, down from 6.33% the week before, according to Bankrate.com. Some brokers report rates as low as 5.25%.

Borrowers with a $200,000 loan, for example, would save about $63 a month if their interest rate dropped to 5.5% from 6%.

Credit the Federal Reserve's announcement that it will buy $500 billion in mortgage-backed securities held by Fannie Mae and Freddie Mac, helping the two mortgage-finance giants increase the pool of money available to banks and other lenders to make new mortgages.

Mortgage professionals used to 10 applications a day may have gotten 200 on Tuesday, says Brian Koss, a managing director of Mortgage Network in Danvers, Mass.

"This is really craziness," Koss says. "This news broke the logjam on interest rates that allowed rates to drop significantly."

Other mortgage professionals say they're seeing an uptick in applications, but the rates should remain low so people can apply when they're ready.