Rising mortgage rates will test housing market


Mortgage rates are continuing their creep upward in a trend that well may choke off a recent refinancing boom and provide a test of the strength of the housing market in 2010.

Freddie Mac’s widely watched survey found that rates averaged 5.14% this week on 30-year fixed-rate home loans for borrowers with good credit and a 20% down payment -- or 20% equity for refinancings. That was up from 5.05% last week and slightly higher than at the same time last year.

On 15-year mortgages, the average fixed rate was 4.54%, up from 4.45% a week earlier.


Borrowers paid their lenders upfront charges averaging 0.7% of the loan balance.

Tracking a rise in yields on Treasury bonds, home-loan rates have risen steadily in the last four weeks since 30-year fixed-rate mortgages averaged a record low of 4.71% on Dec. 3.

The climb comes even though a government effort to keep rates low is in place for a while longer. A Federal Reserve program to spend $1.25 trillion to support the market for mortgage-backed securities is scheduled to end in the spring.

Every tick up in loan rates makes it less likely that someone with an existing mortgage will refinance to save money.

But rates in the 5% range remain extraordinarily low by historical standards, offering a huge incentive for buyers.

For example, principal and interest payments on a new 30-year fixed-rate mortgage were about one-third less than they were in May 2000, when rates peaked at 8.6%, said Frank Nothaft, Freddie Mac’s vice president and chief economist.


“This translates into almost 50% less in interest payments over the full 30-year term,” he said.