Mortgage rates reversed course in a big way this week, with the average 30-year fixed mortgage rate dropping from 6.74 percent to 6.32 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.39 discount and origination points.

The average 15-year fixed rate mortgage nosedived to 5.93 percent, while the average jumbo 30-year fixed rate dropped to 6.32 percent. Adjustable mortgage rates were moderately lower, with the average 1-year ARM now 6.14 percent and the average 5/1 ARM sinking to 6.49 percent.

One week after posting the biggest one week increase since April 1987, mortgage rates staged the largest one week decline since May 1995. Tentative signs that the credit freeze is beginning to thaw, as evidenced by a drop in 1-month and 3-month LIBOR of over 100 basis points in the past week, sparked the reversal in mortgage rates. In addition, yields on benchmark 10-year Treasury notes also dropped as worries about a deep and prolonged recession predominated. Mortgage rates move in relation to Treasury yields, but at a spread -- or markup -- over the risk-free government debt. With Treasury yields falling and mortgage credit spreads narrowing, mortgage borrowers had two factors working in their favor. This is in stark contrast to one week ago when both factors were working against them.

The major retreat in mortgage rates over the past week has a direct impact on a homebuyer's affordability. At last week's rate of 6.74 percent, a $200,000 loan carried a monthly payment of $1,295.87. This week, with the average rate at 6.32 percent, the monthly payment on a $200,000 loan is $1,240.55.