NEW YORK - With U.S. mortgage rates back below 5 percent and still dropping, homeowners are once again looking to refinance loans and cut monthly payments.

The 5 percent level is something of a psychological tipping point, sparking another boom in refinancings, even though activity remains short of the spring peak.

The magical threshold appears to be the 5 percent area, said Darren Beck, chief marketing officer at LendingTree.com in Charlotte, North Carolina. Home loan refinancing traffic increased by 20 to 30 percent when rates fell below 5 percent.

Last week, the Mortgage Bankers Association's index of refinancing applications reached its highest level since mid-May. For the three-week period ended Oct. 2 that mortgage rates have been below 5 percent, refinancing demand is up 38 percent, the MBA said.

The average rate for a 30-year fixed-rate mortgages, excluding fees, averaged 4.89 percent in the week ended Oct. 2, the lowest since the week ended May 22, according to the MBA. That's still above the all-time low of 4.61 percent set in the week ended March 27.

For a graphic on mortgage rates and refinancings, click here: here

We are currently in the middle of a double dip refinance, said David Adamo, chief executive of Luxury Mortgage in Stamford, Connecticut. Many borrowers who refinanced over the past 18 months are taking a second bite of the apple and finding it beneficial to refinance again.

These factors coupled with the fact that there are far fewer mortgage lenders today than there were 12 months ago is causing pipelines to swell all throughout the industry, he said.

Patrick McGee, the 45-year-old head of a sports marketing firm in Virginia, said he will save $322 a month after refinancing the loan on his three-bedroom colonial this week.

After seeing these record low rates right now ... I felt now was the time to lock in a low rate and refinance before they started to go back up again, McGee said.

Still, refinancing demand is about half that of the loftier levels seen earlier this year. Despite low mortgage rates, activity will probably not reach record highs again since many borrowers have already refinanced.

In contrast to refinancings, changes in interest rates typically play less of a role on home purchase loan demand. Purchase applications are at their highest since January, but for the three-week period since rates dropped below 5 percent, applications are only up 12 percent, according to the Mortgage Bankers Association.

Real estate website Zillow.com's Mortgage Marketplace, which tracks mortgage requests, shows the volume of requests increasing to 13,081 last week from 10,963 the previous week.

Low mortgage rates, high affordability and the federal government's $8,000 tax credit for first-time home buyers have helped pave the way for stabilization in the hard-hit U.S. housing market.

But with the tax credit set to expire on Nov. 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.

The wave of homeowners taking advantage of low rates by refinancing is a smart move on the individual level, and it's possible these refinances could help the housing market in the long term, said Stan Humphries, chief economist at Zillow.com, based in Seattle, Washington.

If homeowners are getting out of risky mortgage products and into more traditional products, that could help stem future foreclosures marginally, he said. (Editing by Leslie Adler)

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