U.S. 30-year mortgage rate slides to 3-month low

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By Lynn Adler

NEW YORK, Sept 3 (Reuters) - U.S. 30-year home loan rates fell to a three-month low and edged closer to the psychologically important 5 percent level in the past week, Freddie Mac FRE.N said on Thursday.

At 5.08 percent in the week ended Sept. 3, the long-term fixed borrowing rate declined from 5.14 percent the prior week and was the lowest since 4.91 percent in the week ended May 28.

The interest rate for this most widely used home loan surged by about 3/8 percentage point in the first week of June to 5.29 percent and never again pierced below 5 percent.

Falling bond yields used as a peg for home loan rates pushed mortgage rates down slightly in the latest week, Freddie Mac chief economist Frank Nothaft said in a statement.

The record low, dating back to 1971, was 4.78 percent set in April, according to the second largest U.S. home funding company.

When mortgage rates sank to record lows in the spring, homeowners rushed in droves to slice costs by refinancing existing loans.

The Mortgage Bankers Association's index of refinance applications during that period got as high as 6,814, more than triple the 2,164 reading last week.

Demand for loan refinancing as well as new purchases should be stoked by rates closer to or below 5 percent, most economists have said.

Some potential refinancers who missed the opportunity in the spring, or fell through the cracks in the last round when lenders were overwhelmed, likely will apply anew.

In any case, mortgage rates have been and remain sharply lower than a year ago when the average 30-year rate was 6.35 percent.

To see more rates, click on [ID:nWEQ001354].

A renewed optimism, though somewhat shaky, about U.S. housing and the economy should push home prices up next year after a three-year battering drags average prices down 33 percent from the peak, a Reuters poll found.

To read the poll story, click on [ID:nLAG003722].

Mortgage lenders in the past week charged an average 0.7 point in fees on 30-year loans, unchanged in the week.

(Editing by Chizu Nomiyama)