WASHINGTON — Mortgage rates have reached their lowest levels in
six decades, making this the best time in most Americans’ lives to
buy or refinance a home. For people who qualify, today’s rates
could save thousands of dollars a year.

Yet most people can’t take advantage. Half of would-be buyers
say they’ll never save enough for the 20 percent down payment now
usually required. And shrunken home values have erased much of the
equity people need to refinance.

“Low rates are great, but the real issue is that the pool of
people who can get a loan or refinance is small,” said Greg
McBride, Bankrate.com‘s senior financial analyst.

This week, the average rate on a 30-year fixed mortgage fell to
4.12 percent. It’s the lowest for a 30-year fixed loan since
mortgage buyer Freddie Mac began tracking rates in 1971. The last
time rates were cheaper was in 1951, when most long-term home loans
lasted just 20 or 25 years.

The average on the 15-year fixed loan, a popular refinancing
option, dropped to 3.33 percent this week. That’s also an all-time
low, according to most economists.

Record-low rates have done little to energize depressed home
sales. The average rate on the 30-year fixed loan has been below 5
percent for all but two weeks this year. Yet sales of previously
occupied homes are on pace for their weakest year since 1997.

Too many would-be buyers can’t come up with a down payment,
don’t have a job, lack enough income or are burdened by large debt
loads.

Mortgage rates are low largely because investors are worried
about the economy, thus moving their money out of stocks and into
U.S. Treasurys. Mortgage rates tend to track the yield on the
10-year Treasury note, which touched an all-time low this week.

A drop in mortgage rates could provide some help to the economy
if more people could refinance. When people refinance at lower
rates, they pay less interest on their loans and have more money to
spend.

Consider a homeowner who owes $250,000 and is paying 5.09
percent on a 30-year fixed mortgage. That was the average rate on a
30-year fixed loan being offered in January 2010. Refinancing the
loan at 4.12 percent could save him or her roughly $2,000 a
year.

But many homeowners with good jobs and stable finances have
already refinanced in the past year. The average rate on the
30-year fixed loan fell to 4.17 percent last November, and to 4.15
percent last month. Both were previous lows.

Homeowners typically pay a few thousand dollars in closing costs
when they refinance. To refinance again, most experts say rates
would need to fall an additional 1 percentage point to make it
worthwhile.

Still, plenty of people could benefit from the low rates. More
than 75 percent of homeowners with a government-backed mortgage are
paying rates above 5 percent.

But most can’t qualify. Mike Anderson, a mortgage broker in
Baton Rouge, La., said he’s turning away roughly 40 percent of
customers seeking home loans and refinancing.

“I’ve never had to turn down so many loans upfront,” Anderson
said.

Banks are insisting that applicants have higher credit scores
and make 20 percent down payments if they are a first-time
buyer.

Roughly 40 percent of U.S. households have the necessary credit
scores above 700 to get a prime mortgage rate, according to an
Associated Press analysis of Fair Isaac Corp., or FICO, data.

But just half of potential buyers say they can save enough for a
down payment, particularly one as high as 20 percent, according to
a survey by the National Foundation for Credit Counseling.

Another problem is that nearly a third of homeowners either have
less than 5 percent equity in their home or are “underwater” –
that is, they owe more on their mortgage than their home is worth
– according to the real estate research firm CoreLogic.

As a result, they can’t afford a down payment on a bigger home
and can’t refinance because of lender-imposed limits and the cost
of extra fees. The low rates now being offered don’t include such
fees, which many borrowers must pay to get the rates. Those fees,
known as points, make a mortgage rate, in effect, higher than it is
advertised.

One point is equal to 1 percent of the loan amount. The average
such fee for the 30-year loan held steady this week at 0.7 point.
For the 15-year fixed loan and for five- and one-year
adjustable-rate loans, the average fee was 0.6 point.

Lack of equity is what’s keeping Don Meadows from refinancing.
He owes $247,000 on a house in Orlando, Fla., and is paying 7
percent on a 30-year fixed loan. His monthly payment is $1,840.

If Meadows, 40, a sales manager, could refinance at today’s
rates, he could save more than $400 a month.

But he has no equity in his home. He bought it two years ago for
$274,000. It’s now worth $170,000.

“I couldn’t (refinance) even if I wanted to,” Meadows said.
“Now, we just have to ride it out.”