Mortgage rates fall to 7.32%, the first drop in weeks, but it saves just $22 a month on a $400,000 loan

The average 30-year fixed mortgage rate fell to 7.32% this week, down from 7.40%, according to Freddie Mac\'s Primary Mortgage Market Survey released Thursday at noon. The 15-year fixed averaged 6.68%, down from 6.71%. It is the first weekly decline in the table below, which starts Sept. 17 when the rate was 6.95%.

The weekly path

Source: Freddie Mac PMMS weekly history. Freddie Mac\'s figure is an average of rates on loan applications from the prior Thursday through Wednesday, so it trails the market by a few days.

The number behind the number: what 8 basis points is worth

On a $400,000 loan, principal and interest at 7.40% is about $2,770 a month. At 7.32% it is about $2,748. The drop saves roughly $22 a month, or about $260 a year. That is real but small, and it will not change whether a buyer qualifies.

The year-over-year comparison matters more. Freddie Mac put the rate at 6.19% a year ago. On the same $400,000 loan, payments at 6.19% were about $2,447. Today\'s buyer pays about $300 more every month, roughly $3,600 a year, for the identical house and loan size.

Why it moved

Mortgage rates follow the 10-year Treasury yield more than the Fed\'s policy rate. Treasury\'s daily par yield curve shows the 10-year at 5.28% on Oct. 7 and 5.09% on Oct. 16, a retreat of 19 basis points, before it edged back up to 5.13% on Oct. 21. Freddie Mac\'s survey window ended Wednesday, so it captures part of that retreat but not all of the bounce. We have not independently confirmed why yields eased; Seeking Alpha ties the mortgage decline to falling Treasury yields, which fits the data. See our 10-year yield chart for the current level.

Who this actually touches

• Someone closing in November. A lock set weeks ago at 7.40% or higher does not improve on its own. Ask the lender whether a float-down option exists and what it costs before assuming the lower rate is available.
• A buyer still shopping. One weekly decline is not a trend. The rate was 6.95% five weeks ago, so a move back toward that would take a much larger fall in Treasury yields than we have seen.
• A seller holding a 3% to 4% loan. At 7.32% the gap to a new loan is still wide. We covered that lock-in effect in what the housing freeze means for a moving company, a remodeler and a real estate office.
• A self-employed buyer. Income documentation is the hurdle at any rate. A $22 monthly change helps less than a clean two-year tax return.

What to watch

The next Freddie Mac reading is Oct. 29. The weekly mortgage application data from the Mortgage Bankers Association, which we covered on Oct. 21, reported purchase applications down 7% on the week and 18% below last year even as its rate slipped, so a lower rate has not yet brought buyers back. More background is in our real estate section.

Sources: Freddie Mac PMMS; US Treasury daily par yield curve rates; Seeking Alpha. Payment figures are principal and interest only, calculated by the Chronicle on a 30-year fixed loan, and exclude taxes, insurance and fees. This is market information, not investment advice.