Bailout Plans Cause Mortgage Interest Rate Hike

Uncertainty among lenders and investors about the near future of the economy led to a rise in U.S. mortgage interest rates in the latest week, according to a recent survey from mortgage giant Freddie Mac.

During the week ended Sept. 25, 2008, the average rate on a 30-year fixed rate home loan climbed up to 6.09 percent, excluding points, from 5.78 percent the week before. One year ago, the average rate rested much higher still at 6.42 percent.

“Mortgage rates followed Treasury bond yields higher this week amid market uncertainty over the current state of the economy,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Compared with last Thursday, 10-year Treasury yields are up about 0.3 percentage points, and 30-year fixed-rate loans moved up about the same amount. And while up, interest rates for 30-year FRMs are still more than 0.5 percentage points below this year’s peak of 6.63 percent set the week of July 24th.”

Nothaft also cited other market indicators as cause for the increasing rates. Because soft economic data is often reflected in national mortgage rates, he mentioned that home prices dropped 5.3 percent during the year ended in July according to the Federal Housing Finance Agency’s index. The National Association of Realtors similarly announced a 9.7 decrease in the August median sales price for existing single-family homes, a clear sign that the housing market has not yet hit bottom.

Rates on 15-year fixed rate mortgages also shot up in the past week, reaching 5.77 percent, excluding points, from 5.35 percent the previous week. One year earlier, the average rate was 6.09 percent.

The average rates on both five-year and one-year Treasury-indexed adjustable rate mortgages (ARMs) also increased, with five-year ARMs growing to 6.02 percent from 5.67 percent and one-year ARMs averaging 5.16 percent, up from 5.03 percent the a week earlier. Last year at the same time, the average rates for five-year ARMs and one-year ARMs were 6.15 percent and 5.60 percent, respectively.

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