MORTGAGE RATES DROP INTO CELLAR FOR BUYERS.

Byline: Gregory J. Wilcox Staff Writer

Mortgage rates fell to a historic low this week, with some loans dropping below 6 percent, thanks to a schizophrenic stock market and weak economic news, analysts and industry experts said Friday.

The average rate for a 30-year-fixed mortgage dipped to 6.31 percent this week with 0.6 of a percent in fees, the lowest level since the Federal Home Loan Mortgage Corp. began conducting its national survey in April 1971. It was 6.43 percent last week and 12 months ago it was 7 percent.

``I have an interest rate predictor on my desk. It's a Yo-Yo,'' said Mike McCarthy, general manager and senior vice president at Ditech.com in Costa Mesa, a lender that specializes in refinancing.

Shopping around yielded even lower rates Friday, with Countrywide Home Loans again offering a 5.875 percent fixed rate for anyone willing to pay 2 points in charges. Each point equals 1 percent of the loan amount.

It was a wild week.

The stock market rallied despite more news of corporate corruption and reports that consumer confidence is waning and that productivity at U.S. companies grew at its slowest pace in a year.

Nevertheless, money continued to flow into the bond market, exerting downward pressure on mortgage rates.

``Bipolar is a good way to describe it,'' Keith T. Gumbinger, vice president of mortgage tracker HSH Associates, said of the markets' interaction.

Early in the week, money flowed out of the bond market to participate in the equities rally. And even though the Dow Jones Industrial Average finished up 33 points Friday, the bond market also gained ground.

That explains why Countrywide could offer a 30-year fixed loan under 6 percent.

Gumbinger said that kind of rate has been making brief appearances over the past few weeks. And having it show up Friday is good news for consumers out shopping for a home this weekend.

``The only reason it seems likely it will last (until Monday) is because the bond market is closed for the weekend,'' Gumbinger said.

Mortgage rates are most closely tied to the 10-year Treasury bond, which felt the effect of the Wall Street rally.

``It's been a bumpy ride,'' Lisa Mihailuk, a Countrywide senior vice president, said of market's direction.

Analysts and industry executives expect rates to remain low, possibly for the next 12 months since the Federal Reserve Board is expected to cut the prime rate either next week or in September.

That's not to say there won't be more mood swings, though.

Ditech's McCarthy expects rates to remain low, probably under 7 percent, for the next three or four quarters.

Earl Peattie, vice president of National Financial News, thinks there is nothing to keep rates from dipping even lower.

This could continue to drive the refinance business, and Peattie said consumers should not be shy about paying points to get a lower rate.

For example, if someone took out a 30-year-fixed loan of $257,000 at 6.5 percent the monthly payment would be $1,624. After seven years the borrower would have paid off $111,821 in interest and $24,630 of the principal.

But paying 2 points, or $5,140, would get an interest rate of 6 percent and a monthly payment of $1,541. After seven years interest expenses would total $102,804 and $26,627 of the principal would have been paid down.

Over that time the borrower would have a net savings of $5,874, apart from the impact of tax deductions for interest.

``Putting something up front (the $5,140) really pays off down the line,'' Peattie said.

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MORTGAGE RATES

SOURCE: Freddie Mac 

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