NEW YORK  - U.S. mortgage rates fell below 5 percent for the first time in three weeks, a key level that may boost home loan demand and help the hard-hit housing market recover, a closely watched mortgage survey showed Thursday.

Interest rates on U.S. 30-year fixed-rate mortgages averaged 4.98 percent for the week ending November 5, down from the previous week's 5.03 percent, according to a survey released on Thursday by home funding company Freddie Mac (FRE.P) (FRE.N).

Many industry experts view 5 percent as a key psychological level. When rates drop below this threshold, home loan demand tends to rise, while the opposite holds true when rates rise. A year ago, 30-year mortgage rates averaged 6.20 percent.

Leif Thomsen, CEO of Mortgage Master, in Walpole, Massachusetts, said business is as busy as ever and anticipates mortgage rates staying steady before rising a bit in 2010.

Even this slight rise in rates will take away some of the refinancing action and will put some more pressures on people to make purchases while they can, he said.

The mortgage rate is still significantly higher than the record low of 4.78 percent set the week ending April 2. Freddie Mac, which is the second-largest U.S. mortgage finance company, started the survey in 1971.

Lower mortgage rates should help homeowners lower their monthly payments and feed the ongoing recovery in the housing market, Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

Mortgage rates are linked to both Treasury and mortgage-backed security (MBS) yields.

On Wednesday, the Mortgage Bankers Association said U.S. mortgage applications rose for the first time in four weeks, reflecting a jump in demand for home refinancing loans.

Freddie Mac said the 15-year fixed-rate mortgage averaged 4.40 percent in the latest week, down from 4.46 percent the prior week. For rates table, double-click on

One-year adjustable-rate mortgages (ARMs), were 4.47 percent, down from 4.57 percent last week. Freddie Mac said the 5/1 ARM, set at a fixed rate for five years and adjustable each following year, was 4.35 percent, compared with 4.42 percent a week earlier. A year ago, 15-year mortgages averaged 5.88 percent, the one-year ARM 5.25 percent and the 5/1 ARM 6.19 percent.

Freddie Mac and its larger sibling, Fannie Mae (FNM.P) (FNM.N), were placed under government conservatorship in early September, 2008. Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.