Last week, mortgage rates have dropped, lowering borrowing cost.

The rate for 30-year fixed U.S. home loans fell to 4.97 percent for the week ended today from 5.05 percent, mortgage finance company Freddie Mac said in a statement. The average 15- year rate was 4.33 percent, according to the McLean, Virginia- based company.

“Consumers are still a little bit cautious,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. “The low rates, they’re an incentive.”

Falling mortgage rates reduce borrowing costs and make homes more affordable, increasing demand. A Federal Reserve program to purchase as much as $1.25 trillion in mortgage-backed securities is credited with helping reduce mortgage rates, which fell to a record low of 4.71 percent in December.

Bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy home loans from lenders and package them into securities, brought down yields and allowed lenders to reduce mortgage rates while still selling the bonds at a profit.

Lower mortgage rates and government tax credits weren’t enough to boost home sales in January. Sales of new homes fell to the lowest level on record, slumping 11 percent to an annual pace of 309,000, the Commerce Department said Feb. 24.

Sales of previously owned homes dropped 7.2 percent in January to a seven-month low, falling to an annual pace of 5.05 million, the National Association of Realtors said on Feb. 26.

The index of purchase agreements to buy previously owned homes fell 7.6 percent in January, the National Association of Realtors said today.

The Mortgage Bankers Association’s index of mortgage applications rose 15 percent in the week ended Feb. 26. The refinancing gauge climbed 17 percent and the purchase measure increased 9 percent.

Source: Bloomberg