Interest Rates Jump on Higher T Bonds

Long-term mortgages rates climbed higher during the latest week as U.S. Treasury bond yields increased, according to mortgage giant Freddie Mac Thursday.

In its weekly mortgage market survey, Freddie Mac found that the average interest rate on a 30-year mortgage loan jumped to 6.46 percent, excluding fees, during the week ended Oct. 30, 2008, up from 6.04 percent the previous week. One year ago, the average rate was 6.26 percent.

“Long-term mortgage rates followed long-term Treasury bond yields higher this week, pushing fixed-rate mortgages up to levels of two weeks ago,” said Frank Nothaft, Freddie Mac vice president and chief economist. Analysts have noted that many safety-minded investors have flocked to the dependable returns of Treasury bonds lately, scared away from volatile Wall Street investments.

Nothaft also commented on other types of loan interest rates. “The Federal Reserve’s 0.50 percentage point cut in the discount rate and federal funds target rate on Wednesday was widely anticipated in the financial markets and is likely to keep short-term interest rates low; consequently, initial interest rates on ARMs, which tend to be set relative to other short-term rates, may remain near current levels.”

Rates on 15-year fixed rate home loans averaged 6.19 percent, an increase from 5.72 percent the week before. Last year at this time, the average rate was 5.91 percent.

Interest rates on one-year adjustable rate mortgages also jumped, moving up to 5.38 percent from 5.23 percent last week. During the same week in October 2007, one-year ARMS averaged 5.57 percent.

Nothaft additionally mentioned other positive market factors that have influenced the direction of rates recently. “In other news,” he said, “house-price declines in many markets have improved housing affordability and stimulated home sales. In September, sales of existing homes rose 5.5 percent while sales of new homes were up 2.7 percent, at a seasonally-adjusted annual rate.”

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