The discount rate, the rate the Fed charges on its own loans to banks, remained untouched at 5 percent. Indeed, after the drop in the federal funds rate, one year ARMS fell to 5.49 percent, Sept. 30 and 5.47 percent, Oct. 1. according to Bank Rate Monitor . On October 1, the yield on 30-year bonds dropped below 5 percent for the first time in 30 years, to 4.88 percent. Before the Fed's move, the 10-year Treasury note yield, now at about 4.4 percent, was already at its lowest level since the 1960s, in part because of anticipation the Fed would cut rates. Investors' flight to the bond market after recent Wall Street jitters and the global economic plight also helped push mortgage rates to historic lows.
Economists say there's more room for rates to fall.
Mortgage rates are expected to fall maybe 10 or 15 basis points by end of year, that's down to about 6.5 by the end of year. That's partially because of the fierce competition underway for mortgages, both new and refinanced. Refinance activity reached 62.8 percent of all mortgage applications last week, up from 59.1 percent a week earlier, according to the Washington, D. C.-based Mortgage Bankers Association of America . Refinance activity normally accounts for only about 20 to 25 percent of the market when rates remain steady for a year or so, says Brian Carey, an economist with the association. All mortgage applications were up a whopping 124.4 percent over a year ago, the mortgage bankers association reported Sept. 30.