Good Time to Lock in a 30-Year Fixed Home Mortgage Rate?

Americans -- and certainly investors and job seekers -- haven't had much to cheer about regarding the U.S. economy lately, but there has been one unabashed bright spot -- home mortgage interest rates continue to fall.

The average fixed rate for a 30-year mortgage for borrowers with good credit has declined to 4.10 percent, according to data compiled by bankrate.com. A year ago, the 30-rate averaged was 4.32 percent.

Further, the average fixed rate for a 15-year mortgage has dropped to 3.36 percent, from 3.51 percent last week, and 3.75 percent a year ago.

Therefore, from a strictly home mortgage interest rate standpoint, all other factors being equal, and assuming you have a good credit rating, now may be a good time to consider locking in a 30-year or 15-year fixed rate for a mortgage.

Interest rates may continue to drift lower, but a 30-year fixed rate at/near 4.10 percent is very low for the United States in the modern era (since 1960).

Low, Low Mortgage Rates

What's pushing home mortgage rates lower? Home mortgage interest rates are primarily driven by market forces, and those forces imply less demand for capital, which decreases the price of money, including home mortgage rates.

Further, despite the U.S. Government's large budget deficit, the 10-year U.S. Treasury note is down to 2.03 percent and that's pushing companion interest rates, or other long-term yields, lower, as well.

What's driving the 10-year U.S. Treasury note's interest rate and other rates lower? Two factors.

First, European government debt concerns are pushing institutional investors out of bonds in debt-laden European countries and in to safe havens, and U.S. Government bonds represent one preferred asset.

That may seem like a contradiction: investors rushing in to by U.S. Government bonds at the same time some in political circles are expressing concern about the U.S.'s large budget deficit and national debt, which a special Congressional super committee will try to cut by at least $1.5 trillion more by Thanksgiving.

At least for now, institutional investors remain confident in the U.S. Government's ability to pay its debt -- confidence in the faith and credit of the federal government and they view U.S. Treasuries as a safe haven -- practically as good as having a cash position. That buying of bonds has lowered the U.S.'s debt servicing costs and has lowered home mortgage rates: when low-risk Treasury interest rates drop, slightly higher-risk mortgage rates tend to drop as well.

Second, the tepid U.S. economy and concern about a slowdown in the global economy has reduced the demand for capital globally -- many companies/institutions outside of selected banks are rolling in cash -- and that's helped lower home mortgage rates, as well. Essentially, investors see some, but not many, promising places to deploy capital -- business investments where they're likely to net a high rate of return. As a result, they're rotating (also called parking) money in U.S. Treasuries and other safe instruments, and that's also helping to push down mortgage rates.

Third, the all-important long-term view is further depressing interest rates. Institutional investors -- the big guns including hedge funds, mutual funds, and investment funds -- say the United States is likely to be a preferred place to park funds for one, two, three years etc., and that's also putting downward pressure on interest rates.

Again, point three may seem like a paradox -- a safe haven U.S. amid large budget deficits -- but it's not when viewed through the lens of institutional investors. If you had a choice, where would you invest your bond money? Europe? Japan? Russia? China? Or the United States? Point: the U.S. remains the least worst option after all geopolitical risk factors are considered

Housing: Time to Take the Plunge?

Of course there are many factors in the home purchase decision, including where prices are headed in the next year. Many cities in the U.S. are experiencing soft home sales, and prices could remain sluggish in these areas for at least the next two quarters, and probably longer.

That said, if you've spotted the dream house you must have, or are otherwise committed to buying, home mortgage interest rates are low -- advantageous is another word.

Meanwhile, the refinancing decision is obvious enough: for most refinancing packages, if you can lower your interest rate by about 1.5 percentages points or more, it makes sense to refinance.

Housing Analysis: If you're basing your home purchase decision solely on interest rates, the risk/reward scale is tipped in favor of a home purchase. Here's why:

Do a risk/reward analysis favored by former U.S. Treasury Secretary and Citigroup Director Robert Rubin:

Evaluate the probability of the 30-year, fixed mortgage rate rising from 4.10 percent and the probability of it falling over the next six months.

Rates could fall to, perhaps, 3.75 percent or 3.70 percent, a reduction of about 35 to 40 basis points. Rates could also rise to five percent or 5.25 percent, or even higher. Based on historical precedent, there is more upside risk than downside gain -- and that argues for locking-in a fixed rate now.