Mortgage Interest Rates Drop Along With Bonds

Mortgage rates fell back Tuesday, all but erasing the sudden jump last week that briefly rattled the real estate lending market.

Interest rates in the bond market were at seven-month highs last week, causing the average rate for a 30-year fixed mortgage to leap more than two-tenths of a percentage point, to 6.924% on Thursday from 6.709% the week earlier, said Earl Peattie, president of Mortgage News Co., which tracks California rates. (These are figures for loans with a fee of two points, or 2% of the total loan amount.)

Mortgage brokers said the sudden jump endangered some refinancing deals for people who had not locked in a lower rate.

Tuesday, however, mortgage rates dropped back to 6.75% along with bond yields, as inflation fears were soothed by weaker economic numbers. Other consumer lending rates tend to react more slowly to the bond market than mortgage rates.

Rates remain well above the most recent low of 6.423% on Oct. 5, a fact that has cooled last fall’s refinancing boom. U.S. interest rates in general had declined fairly steadily from the spring of 1997 until last month. However, there have been other periods since 1997 when rates had short-term spikes.

Refinancings comprised only 46% of the mortgage applications at the end of February, down from 57.1% in late December, according to figures by the Mortgage Bankers Assn. The association expects the proportion of refinancings to drop again when last week’s figures are released today, said Brian Carey, association economist.

The slightly higher rates have yet to affect the home purchasing market, however, which tends to react more slowly to rate changes than the refinancing market, economists said.

“Historically, rates are still pretty low,” said Sohn Won Song, chief economist for Wells Fargo & Co., whose Norwest Mortgage subsidiary is the largest mortgage lender in the country.

A 0.2 percentage point difference, he said, “is not going to kill you if you really want the house.”