Home Mortgage Rates Rise, But Fed’s Move Calms Fears

For the nation’s potential home mortgage applicants, there’s good news and bad news coming out of Bankrate.com’s weekly survey.

The good news is that home prices across the country continue to fall. The bad news is that home mortgage rates are rising — modestly, though.

• The 30-year fixed-rate mortgage, the industry’s benchmark home loan, rose for the third time in four weeks, rising .04 percent to 6.46 percent, the national survey concluded.
• The mortgage costs in this week’s survey averaged a total of 0.35 discount and origination points. One year ago, the mortgages averaged 6.24 percent.
• Four weeks ago, the 30-year loan was 6.29 percent, meaning borrowing costs have shot up a significant .17 percent in a little over a month.

But that’s not all bad. As mortgage rates rise, home prices tend to fall. Experts say existing home sales fell 1.9 percent in September compared to August. Of the houses that were sold in September, the median home price was $220,000, compared with $225,000 (2.2 percent more) a year ago.

The 15-year, fixed-rate mortgage, meanwhile, rose .06 percent to a 6.16 percent average to end the week. This remains a popular choice for mortgage refinancing, which bolstered applications across the U.S. this week.

The 5/1 adjustable-rate mortgage (ARM) went up to 6.28 percent from 6.24 percent.

Other good news came when the Federal Reserve decided to keep short-term rates steady once again. While rates of standard mortgages and home equity loans don’t directly depend on the Federal Reserve, the U.S. central bank wields considerable influence. In this case, it calmed fears of inflation that had been surfacing.

And as for what’s to come?

Doug Duncan of the Mortgage Bankers Association, predicts fixed-rate mortgages will rise, but only to somewhere in the 6.5-6.75 percent range through the end of 2007. That’s just slightly higher than today’s average, and still gives buyers a great chance to obtain solid financing.

As far as the housing market goes, Duncan doesn’t think they’ll continue to fall for much longer, especially used houses. Some would-be sellers will take their houses off the market rather than accept low offers. Duncan also doesn’t see prices rising much, either, at least for the next 12-18 months.

Doreen Woo Ho, president of Wells Fargo’s consumer credit group, expects a mini-boom in home improvement spending as homeowners decide to keep their houses and wait for values to climb again.

In the past couple of years there has been a trend of owners refinancing mortgages to pay off home equity loans. That might change, as people take out a home equity loan or line of credit to pay for improvements.

Here’s a look at how the mortgage rates shape up this week in terms of monthly payments. The figures below are based on a $165,000 home loan: