OREANDA-NEWS. U.S. mortgage rates have declined to near-historic lows, which coupled with recent actions by the Federal Housing Authority (FHA) could create more incentive for borrowers looking to purchase a home or refinance their mortgage, according to Fitch Ratings in its latest quarterly index report.

The average interest rate for 30-year fixed-rate mortgages has fallen 92 basis points (bps) since mid-2013, and is currently at a 20-month low of 3.66%. The decline in mortgage rates benefits those looking to purchase a home, particularly first-time purchasers. 'Conditions are very favorable for first-time homebuyers to start getting back into the market,' said Director Sean Nelson. 'Mortgage rates are falling, FHA insurance premiums are coming down, home prices are cooling and employment is steady.'

Many first-time homebuyers finance their home with a FHA insured mortgage due to the low down payment requirements. The FHA recently announced a reduction in its mortgage insurance premiums, which could save new borrowers an average of \$900 per year.

Borrowers looking to refinance (refi) their existing mortgage should benefit as well. Historically, sharp declines in mortgage rates have resulted in spikes in refi rates. However, mortgage rates were lower than today's levels as recently as 2012-2013, so the recent declines may not have as large of an impact on refi rates as in the past. Fewer remaining borrowers may be eligible to refi. 'Those borrowers that did not already take advantage of the historically low interest rates of 2012-2013 may be restricted by credit issues or insufficient home equity,' said Nelson.

However, today's falling rates may still provide refi incentive for some. Borrowers who were unable to refinance in 2012-2013 because they were underwater on their mortgage may have built up enough home equity to refi after several years of strong home price growth. In addition, those who took out a mortgage in the last year and a half when rates were higher could benefit from refinancing with today's rates.

Fitch's index is published quarterly and highlights performance trends in legacy and new issue RMBS, house price conditions and mortgage market developments. The 30-Year Fixed-Rate Mortgage Rate index reflects Freddie Mac's Primary Mortgage Market Survey.