Interest Mortgage Rates

Mortgage rates skyrocketed for the third time in the past four weeks and are now at their highest levels since last fall.

The average 30-year fixed rate shot up by 41 basis points from the previous week, to 6.37 percent. A basis point is one-hundredth of a percentage point. This week’s 30-year fixed is at its highest level since Oct. 17, when it was 6.49 percent.

Meanwhile, the average 15-year fixed — a popular option for refinancing — also rose 41 basis points, to 5.87 percent. The average jumbo 30-year fixed rose 39 basis points, to 7.55 percent.

Adjustable-rate mortgages also moved up this week. The one-year adjustable-rate mortgage rose 10 basis points, to 5.56 percent. The popular 5/1 ARM rose 27 basis point, to 5.77 percent.

Mortgage rates have risen substantially for three out of the four weeks since Jan. 23, when the 30-year fixed bottomed out at 5.57 percent. That week, mortgage rates hit their lowest levels since March 2004.

The recent surge in mortgage rates offers more evidence that Federal Reserve interest rate cuts do not directly determine short-term mortgage rate performance. The Fed cut the federal funds rate by 75 basis points on Jan. 22 in an emergency move designed to spark the slowing U.S. economy. The Fed then slashed rates an additional 50 basis points at its regularly scheduled meeting on Jan. 30.

Some observers voiced hopes that the dramatic action would force mortgage rates lower and bring new life to the sagging U.S. housing market. However, since the Jan. 22 cut, mortgage rates have actually risen by 80 basis points. Rates have climbed by at least 18 basis points in three out of the past four weeks.

A drop in requests for mortgage loans this week also appeared to confirm that higher mortgage rates are dampening homeowner enthusiasm for refinancing. Mortgage loan application activity fell for the second consecutive week. Application volume for the week ending Feb. 15 dropped a seasonally adjusted 22.6 percent from the previous week’s reading, according to statistics from the Mortgage Bankers Association.

Refinancing activity took a particularly hard hit, dipping a seasonally adjusted 27.9 percent from the previous week.

Until the last two weeks, mortgage application activity had risen each week since the beginning of the year.

On days like this, I think it’s important to go back to the ol’ mortgage primer and figure out exactly what all this news means to you, to your mortgage, to your home equity line and to your home’s financial future. I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries.

Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now.

Today’s rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market, maybe not three quarter’s point, but definitely a half-point. So if you are facing a reset on your ARM, you’re in much better shape today than you were just six months ago.

For example, if your rate adjusts Feb. 1st, and your ARM is pegged to the 1-year treasury, than your reset is going to be to 5.25 percent as opposed to the 7.5 percent that it would have been in August. That’s going to make the payment much more manageable.

So does this cut stem the foreclosure crisis? Maybe a bit on the margins, but not really, and here’s why: the bulk of the folks facing foreclosure because they can’t make their monthly payments have no equity in their homes and no money to put down on a refinance.

While rates might be lower, this is a market where lenders and investors are much more aware of risk and will gravitate toward borrowers that represent less risk. So many folks will still find themselves in trouble. For people who are having trouble paying the initial rate on the loan, forget it. No help there.

As for those looking to buy a home, that is, get a new mortgage, while ARM rates may be lower, the mortgage landscape is still a far far different tundra than it was just a year ago. You can’t do a stated income loan anymore, and you can’t do 100 percent financing. Tighter standards don’t change with a rate cut.

The Johns Hopkins Federal Credit Union is offering an Adjustable Rate Mortage(ARM) with a rate of prime minus 2.5%. The rate is adjusted once a year on the anniversary of the settlement date of the loan. Annual rate increases for this loan are capped at 2.00%. This loan also comes with a $1,500 closing cost rebate.

Field of membership in The Johns Hopkins Federal Credit Union is extended to employees and retirees of John Hopkins University and a number of select employer groups. Membership is also extended to those who live, work, worship, volunteer, or attend school in a defined area within Baltimore, Maryland.

Congressional aides said today that the Bush administration had hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

Rate: 6.29 percent (30-year fixed) Average Points: 0.35

Mortgage rates moved modestly in the past week, continuing a holding pattern that has lasted for about a month. The average 30-year fixed rate fell 3 basis points from the previous week, to 6.29 percent. A basis point is one-hundredth of a percentage point.

For the second consecutive week, the average 15-year fixed — a popular option for refinancing — fell 6 basis points, to 5.92 percent. Meanwhile, the average jumbo 30-year fixed rose 5 basis points, to 7.2 percent. It was the second straight week that the jumbo rose while 30-year and 15-year fixed rates fell.

Adjustable-rate mortgages fell slightly this week. The popular 5/1 ARM fell 4 basis points, to 6.15 percent. The one-year ARM also fell 4 basis points, to 6 percent.

While mortgage rates are holding relatively steady for now, the long-term outlook remains murky. On one hand, mild core inflation and the stock market’s recent dip, which have boosted bond prices and lowered bond yields, have helped contain upward pressure on interest rates.

But the joy may be relatively short-lived. Some experts insist that it is only a matter of time before high energy prices, a sinking U.S. dollar and other factors drive interest rates higher.

Countrywide Bank has a low 6.33% APR or 5.875% rate on their 30 year fixed mortgage. On their 5 year ARM, they are offering 5.00% rate and 6.77% APR. Of course your actual rate will depend on your credit history and a few other factors, but these are some pretty low mortgage rates.

The Federal Reserve cut the target for the federal funds rate by a quarter-point this week, and you can be sure of what that means for mortgage rates: They will climb. Or they will drop. Or they will stay about the same.

In other words, there isn’t a straight connection between what the Fed does and what fixed-rate mortgages do. Sometimes they move in the same direction and sometimes they move in opposite directions. Often, it depends on your time frame.

Some potential borrowers float their rate in advance of a Fed rate cut, expecting long-term, fixed mortgage rates to fall a quarter-point immediately after the Fed cuts a quarter-point. “They do not understand that it does not work that way,” says Kevin Weaver, a broker with Kash Mortgage in Lexington, Ky.

Weaver points out that the Fed cut the federal funds rate by a half-point Sept. 18 and a quarter-point on Halloween, and on both occasions long-term bond yields immediately jumped higher. Some mortgage lenders raised rates immediately, too.

After the Sept. 18 Fed rate cut, mortgage rates remained higher for a month before settling back down to where they had been before the central bank’s action. When the federal funds rate was cut Oct. 31, long-term bond yields spiked higher, then fell back the next morning.