Mortgage rates head up, up, up

Mortgage rates hit their highest point in almost four years this week, a move that is expected to slow home sales even more.

The average rate on a 30-year, fixed home loan reached 6.53 percent, mortgage firm Freddie Mac reported. That is up from 6.49 percent last week.

Market watchers say the climbing isn't over.

"Rates are likely to reach 7 percent this year, and that will likely put a brake on real estate in Arizona," said Terry Turk, president of Mesa-based Sun American Mortgage Co.

A 50 percent rise in home prices in 2005 means many buyers need low rates to afford a house.

In September, when the median price of a used Valley home hit $263,000, the average 30-year mortgage rate was 5.77 percent. Financing the full amount meant a monthly payment of $1,535.

The median price still is $263,000. But at today's higher mortgage rate, the monthly payment on the same loan is $1,663.

Yields on 10-year Treasury notes, which directly affect mortgage rates, have been steadily climbing for four weeks as Wall Street worries about inflation creeping up.

This week's 30-year mortgage rate was the highest since July 2002, when it was 6.54 percent. But it is still low by historic standards. In 1981, 30-year rates topped 18 percent.

Housing starts sink to lowest in a year

The pace of U.S. construction of new houses fell 7.8% in March, with the seasonally adjusted annual rate of 1.96 million units marking the lowest level in a year, the Commerce Department reported Tuesday.

The decline was larger than expected. Economists surveyed by MarketWatch had been calling, on average, for a decline to 2.04 million from a revised 2.126 million in February.

Economists said the decline brought starts more in line with the recent softening in housing sales and as such was not worrisome.

"The report does not change the picture of robust housing starts in the first quarter, but it does indicate that starts have begun to slow notably from the weather-driven January-February surge," said Dean Maki, economist at Barclays Capital.

But the nation's housing market has been clearly softening. On Monday, the National Association of Home Builders said its activity index fell to a three-year low in March. "We expect a further softening in housing activity from elevated levels in the months ahead, but we do not believe that this moderation will be sufficient to significantly slow the overall rate of economic growth," said economists at Bear Stearns.

The Federal Reserve is looking for housing to slow at a moderate pace this year. If the market looks headed for an outright collapse, it could bring a quick end to the Fed's tightening of monetary policy and bring relief on interest rates. But it's unlikely the Fed would react to any single month's housing numbers, especially considering the rampant skepticism at the the central bank that even falling home prices would curb consumers' spending.

In March, new construction of single-family homes fell 12.0% to a seasonally adjusted annual rate of 1.591 million. Meanwhile, 2.059 million annualized building permits were authorized by local government jurisdictions, down 5.5% from February's 2.179 million pace. This is the biggest decline in permits since September 1999. Permits are also at their lowest level in a year. Building permits for single-family homes dropped 6.9% to a 1.542 million pace.

No region exempt

In March, new construction dropped across the country. Starts fell by 15.5% in the West, by 8.2% in the Midwest, by 4.8% in the South and by 0.5% in the Northeast.
The housing data are subject to large sampling and other statistical errors, especially on the regional level.

The government cautions that it can take up to five months for a new trend to be established in starts.

Starts in February were revised slightly to a decline of 7.8% to 2.126 million units from the initial estimate of a 7.9% drop to 2.12 million. Starts had jumped 16% to a 33-year high in January, because of mild winter weather. Despite the weakness in February and March, starts are up 6.9% on a year-on-year basis.

Mortgage rates at nearly-4-year high

Mortgage rates rose for the third consecutive week, to the highest level in nearly four years, Freddie Mac said Thursday.

The average rate on 30-year fixed-rate mortgages rose to 6.49 percent for the week ending April 13, up from the prior week's 6.43 percent, a Freddie Mac survey said. The level was the highest since the week of July 19, 2002.
30-year fixed-rate mortgage rates rose for the third consecutive week.
30-year fixed-rate mortgage rates rose for the third consecutive week.

The average rate on 15-year fixed-rate mortgages edged up to 6.14 percent from 6.10 percent last week.

Five-year adjustable-rate mortgages averaged 6.13 percent, up from 6.11 percent the prior week.

One-year adjustable-rate mortgages averaged 5.61 percent, up from 5.57 percent.

Mortgage rates up after Fed hike

Rates on 30-year mortgages rose this week after the Federal Reserve pushed a key short-term rate up for the 15th time and indicated that more rate increases were possible.

Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.35 percent this week, up from 6.32 percent last week.

The increase pushed rates to the highest level since they hit a 2½-year high of 6.37 percent the week of March 9.

Rising mortgage rates are expected to cool off the extended boom in housing that saw sales of both new and existing homes set records for five consecutive years. Analysts are looking for sales to drop by around 6 percent this year.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing a home mortgage, averaged 6 percent this week, up from 5.97 percent last week.

One-year adjustable rate mortgages rose to 5.51 percent, up from 5.41 percent last week.

Rates on five-year hybrid adjustable rate mortgages also rose, climbing to 6.02 percent, up from 5.96 percent last week.

The mortgage rates do not include add-on fees known as points. The 30-year and 15-year mortgages carried an average nationwide fee of 0.5 point while the one-year ARM had a fee of 0.8 point and the five-year ARM carried an average fee of 0.6 point.

A year ago, 30-year mortgages averaged 6.04 percent, 15-year mortgages stood at 5.58 percent, one-year adjustable-rate mortgages were at 4.33 percent and five-year hybrid adjustable rate mortgages averaged 5.43 percent.

Refinancing your refinancing

he fed raised short term rates for the 15th consecutive time earlier this week. And for millions of homeowners out there who have adjustable rate mortgages, that's very sobering news.

In today's Five Tips we're going to tell you what you need to know.

1. Calculate the impact

In 2006 about 10 percent of all residential mortgages will need to be re-priced, according to the Federal Reserve. And that means Americans are going to be paying a whole lot more. For instance, if you had a $200,000 loan with a 4.5 percent interest rate that was repriced at 6.5 percent, you'll be paying about $300 more a month.

To measure the impact this will have on your mortgage, check out the promissory note from your mortgage lender. The type of loan you have (whether it's a five year one Adjustable Rate Mortgage or a 7 year one ARM) should be indicated. You'll also find information on when your rate lock expires and how much your interest rate is allowed to go up.

For example, your interest rate can't increase more than 2 percentage points a year in most cases. But sometimes, that rate hike can be as high as 5 percent. You also should get information on what your lifetime interest cap is on your loan. For most loans, your rate can't increase more than 6 percent over its lifetime, according to Holden Lewis of Bankrate.com.

Remember, finding out your loan specifics should be easy. The government requires that this information not be in the fine print and that it is on one of the first few pages of your mortgage agreement.

2. Weigh the costs

Refinancing your home takes a lot of dough. You should do the math to figure out if it's even worth the upfront costs. If you have to pay $3,000 in closing costs, but you're only saving about $150 a month by refinancing, it would take you almost 2 years to make up the cost of refinancing.

And it's not just closing costs you should be calculating. You also may have to pay appraisal fees, loan and origination fees. And on top of all that, don't forget you may have to pay title insurance, which can be up to tens of thousands of dollars. To figure out if refinancing will be worth your while, check out the calculators at financefx.com.

3. Find the best lender

Fewer people are borrowing today so mortgage lenders are even more eager for your business. That means you'll have more leverage to cut some costs when it comes to negotiating with a lender.

If you've already used a lender for your current mortgage, you may want to consider using them again since you've an established history with them. And you may even be able to negotiate even more of a discount. Here are some places where you can begin your search: Bankrate.com and Yahoo! Finance to find lenders in your area.

4. Forget interest only

The people who have interest only loans are going to feel the biggest pinch. That's because many of those homeowners have not been paying down any of the principle. Once the rates are adjusted, people with interest only loans will have to pay back the principle that has been accruing plus a higher rate of interest.

If you're looking for at a seemingly attractive way to refinance, stay away from the payment option ARM. These are loans with a very low starting rate of 1.5 percent. The problem is that they adjust within one to 6 months. And many people are seduced by these loans because you basically choose what you want your payment to be each month. You could even decide to pay less than the interest on the loan.

Don't be a sucker. You would owe more on the loan at the end of the month than you did at the beginning of the month. That's because you're not including the interest you built up that month. It's called negative amortization.

5. The light at the end of the tunnel

If you've taken out a home equity line of credit, you're very familiar with how just how much your payments increase after a rate hike. In fact, if you took out a home equity line of credit in June of 2004, today you would be paying about double the amount of interest on that same loan.

The good news here is that some economists say the Fed may stop raising rates after another quarter point hike on May 10th. If you don't want to take your chances on the Fed, you may want to take out a home equity loan to pay off your home equity line of credit. Unlike HELOCs, home equity loans have a fixed rate.