Mortgage rates sink, likely to keep falling

WASHINGTON -- Rates on 30-year mortgages plunged this week to the lowest level since January, and are poised to fall further after the Federal Reserve launched a new effort to prop up the flailing housing market.

Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.98% this week.

That was down from 5.03% last week. It was the lowest since the week of Jan. 15, when it was at 4.96%.

Interest rates on 30-year fixed-rate mortgages fell more than 0.40 percentage points from Wednesday to 4.79%, according to the Zillow Mortgage Rate Monitor, compiled by real estate website Zillow.com.

The sharp drop came after the Fed said Wednesday it will pump $1.2 trillion into the economy in an effort to lower rates on mortgages and other and loosen credit.

The rate quotes included in Freddie Mac's survey were taken before the Fed's announcement, which is expected to drive mortgage rates down further.

The battered housing market is both the source and a major casualty of the credit crisis. A recovery in the market considered crucial to a turnaround in the world's largest economy.

Low mortgage rates have and should continue to spur demand for home refinancing loans. Lower monthly payments provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.

However, so far, the low rates have had little to no impact on demand for loans to purchase homes. But the Fed hopes lower interest rates on mortgages will change that.