A benchmark mortgage rate hit its lowest point in more than 50 years, and homeowners stampeded into loan offices to apply for refinances.

The benchmark 30-year fixed-rate mortgage fell 10 basis points, to 5.19 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 0.42 discount and origination points. One year ago, the mortgage index was 5.91 percent; four weeks ago, it was 5.45 percent.

The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.8 percent. The benchmark 5/1 adjustable-rate mortgage fell 3 basis points, to 5.21 percent. The 30-year jumbo, for bigger loans, showed the biggest improvement, falling 22 basis points, to a diabolical 6.66 percent.

Bankrate has surveyed mortgage rates weekly since September 1985. Before this week, the record low for the 30-year fixed had been 5.28 percent, set in June 2003 and again this January. This week's rate sets the record low in the nearly 24-year history of Bankrate's survey.

According to the National Bureau of Economic Research, the average rate on a 30-year, fixed-rate, FHA-insured mortgage was 5.15 percent in December 1956. That appears to be the last time that rates were lower.

It appears that homeowners, eager to refinance, took advantage of the lowest rates since the Eisenhower administration.

The Mortgage Bankers Association says home loan applications soared by more than 30 percent last week. Four-fifths of those applicants were homeowners who had loans and who wanted to refinance at lower rates.

There's evidence that some of those homeowners applied at more than one place, swelling the MBA's numbers. According to Mortgage Maxx, a research firm, the MAX index of loan applicants was up just 1.8 percent last week. Mortgage Maxx aims to count the number of households applying for mortgages while the MBA counts how many loans they applied for. If the number of people applying for mortgages went up 1.8 percent, but applications rose 32 percent, then some people are applying with more than one lender.

If there's one thing that stops people from applying at more than one place, it's the upfront request for the borrower to pay for an appraisal. "One of the things we try to do is get an appraisal ordered from the beginning," says Michael Moskowitz, president of New York-based Equity Now, one of the largest direct mortgage lenders in the Northeast. "A very small percentage of people will order an appraisal in three places."

This might be the low
People in the mortgage industry say they hear from a lot of people who say they won't refinance until mortgage rates fall to 4.5 percent or even 4 percent. Few lenders think rates will drop that low.

"It is ridiculous for somebody to hold out for 4 percent because there's no evidence that we're going to see that immediately," says Barry Habib, CEO of Mortgage Market Guide. It would be better, he says, to refinance now to take advantage of lower rates -- and if rates unexpectedly drop even further, refinance again.

Another reason to act now, instead of waiting, is that lenders keep tightening their standards -- and, at the same time, house prices are falling. The combination of more stringent lending and falling prices can push homeowners out of the category of people who are eligible for loans and into the category of people who are ineligible.

Here's the most recent example: Until this month, the Federal Housing Administration would insure a loan for a cash-out refinance to 95 percent loan to value. "They just lowered that to 85 percent. That was a big change," says Matt Hackett, underwriting manager for Equity Now.

The FHA will do a rate-and-term refi, in which the new loan is for the same amount as the balance on the old loan, for up to 97.75 percent loan to value.

For conventional loans -- those not insured by the FHA -- standards are tighter. Hackett says mortgage insurance companies won't insure cash-out refinances. In most places, a rate-and-term refinance can go as high as 90 percent loan to value. In the few areas that aren't defined as "declining markets," people with good credit scores can refinance at up to 95 percent loan to value.

Posted: March 25, 2009