Pay less than 4% for a fixed-rate 30-year loan

Calculator home on money

A community bank up in Massachusetts is offering one of August's best deals on a 30-year fixed-rate mortgage.

The Institution for Savings is charging just 3.99% with no points, around $760 in fees and a 45-day rate lock.

That's just over a quarter of a percentage point less than the national average of 30-year loans — 4.27% with an average 0.26 points, according to our latest survey of major lenders.

Although this loan is only available in two states — New Hampshire and eastern Massachusetts — it offers borrowers everywhere a great blueprint to follow. If you can find a similar deal in your area, you know you've found a winner.

You can get started by searching the best mortgage rates from scores of local banks and mortgage brokers in the Bankrate database.

For this loan from Institution for Savings, your monthly principal and interest payment would be $477 for every $100,000 borrowed.

You can use our mortgage calculator to determine the monthly payments for the amount you want to borrow with any home loan.

It will also provide a month-by-month amortization schedule that shows how much you've reduced your debt and how much you still owe if you want to pay off the loan.

Institution for Savings is based in Newburyport, Massachusetts, and can trace its heritage back to 1820. It enjoys an A+ rating from the Better Business Bureau.

To qualify for this deal, you must:

Mortgage rates are about a quarter point lower than they were in late summer 2013 and have defied all expectations that they would get more expensive this year. In fact, they've actually gotten a little cheaper since the first of the year.

Home loans were expected to become more expensive because the Federal Reserve is gradually ending its campaign to drive long-term rates, including mortgage rates, to record lows.

In September 2012, the government-controlled bank started buying up $85 billion of debt per month, split between Treasury bills and bonds backed by home loans.

By flooding the mortgage market with money, it pushed the cost of home loans to record lows in an attempt to boost real estate sales and property values battered by the recession.

With the economy on the mend, the Fed began reducing those purchases this year, buying only $75 billion in January, $65 billion in February and March, $55 billion in April, $45 billion in May, $35 billion in June and July and a projected $25 billion in August and September.

According to minutes from the Fed's last policy meeting, it's planning to buy a final $15 billion in October and then bow out of the bond market in November — unless, of course, we're confronted with some new economic catastrophe.

So why are mortgage rates defying all expectations?

The major reason is that the demand for mortgages — and the money behind them — has truly cratered.

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Millions of homeowners leapt at cheaper mortgages when interest rates were falling, and now the boom is over.

Refinancings are down about 60% this year, according to the Mortgage Bankers Association.

Home sales are flat as well. The association expects the number of mortgage originations for purchases to actually fall by about 10% this year.

Lenders issued only 226,000 mortgages for one- to four-family dwellings during the first quarter — the fewest since the second quarter of 1997.

The market picked up in the second quarter, rebounding to 267,000 loans, but that was still less than half the number written in April, May and June of 2013.

All of this has made the Fed's withdrawal from the mortgage market more or less irrelevant. The money it's been providing simply isn't needed to fund the relatively few new loans being written.

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