Mortgage Rates Drop to a 20-Month Low

Mortgage rates declined, remaining at the lowest levels in more than 20 months.

The average rate for a 30-year fixed mortgage fell to 3.59% from 3.66% last week, Freddie Mac said in a statement Thursday. The average 15-year rate slipped to 2.92% from 2.98%, the McLean, Va.-based mortgage-finance company said. Both were the lowest since May 2013.

Falling borrowing costs have spurred an increase in the number of Americans applying for home loans. The Mortgage Bankers Association's index of refinancing applications rose to an 18-month high in January, and the flow of homeowners seeking to reduce their monthly bills is set for a sustained boom, according to Paul Diggle, property economist for Capital Economics Ltd. in London.

Purchase applications "remain very subdued by historical standards, running at less than half the average level between 2000 and 2005," Diggle wrote in a note to clients on Wednesday. "But there are good reasons to expect applications for home purchase to rise over the next year" as credit conditions loosen.

The recovery in home sales is uneven. Contracts to buy previously owned houses dropped in December by the most in a year as potential buyers found few choices on the market, the National Association of Realtors reported last week.