30-year fixed mortgage rates rise slightly
Interest rates offered by mortgage lenders edged higher this week, with the typical rate on a 30-year fixed home loan at 4.99%, up from 4.96% last week, Freddie Mac said Thursday in its weekly report.
It was the fourth consecutive week that the survey recorded rates under 5% for 30-year mortgages. It seemed likely that mortgage rates would creep still higher, given a jump this week in the interest rates, or yield, being paid on U.S. Treasury securities, which home-lending rates generally follow.
“Mortgage rates inched up slightly this week,” Frank Nothaft, Freddie Mac’s chief economist, said in a statement. But, he added, “bond yields rose even further.”
Freddie Mac, the giant buyer and guarantor of mortgages that is now controlled by the government, said the 4.99% rate was being offered to well-qualified borrowers with a 20% down payment who paid 0.6% of the loan balance in upfront charges to the lender or broker.
Rates on 15-year fixed mortgages averaged 4.34% this week with 0.6% in upfront lender charges, up from 4.33% last week.
The five-year Treasury-indexed hybrid adjustable-rate mortgage, which has a fixed rate for the first five years, had an average starting rate of 4.14% this week with an average 0.6% in lender charges, up from 4.09% last week.
The one-year Treasury-indexed ARM averaged 4.20% this week with 0.6% in lender charges, compared with 4.12% last week.
Mortgage industry professionals say well-qualified borrowers often can negotiate better rates than those in Freddie Mac’s survey of lender offering rates.
In welcome news for borrowers, it appears that home loan rates will not rise much after the Federal Reserve stops buying mortgage-backed securities issued by Freddie Mac and its sister firm, Fannie Mae. The market for these so-called agency securities has stabilized and already has factored in the end of the Fed’s purchases, according to bond mutual-fund giant Pacific Investment Management Co. of Newport Beach.
Pimco managing director Scott Simon, head of the firm’s mortgage-backed securities operation, said in an interview this week he expects at most an increase of one-eighth of a percentage point in mortgage rates when the Fed completes its planned purchases of $1.25 trillion in Fannie and Freddie bonds this month.
Other factors, however, will drive rates higher, said Pimco chief Bill Gross, who believes the nearly three-decade bond market rally may be drawing to a close. Bond prices move in the opposite direction from their yields, the effective interest rates they pay, so lower bond prices mean higher rates.
Excess borrowing in the United States, Britain, Japan and other nations will eventually lead to inflation as the governments sell record amounts of debt to finance huge budget deficits, Gross said. That will push yields on Treasury securities higher next year as the economy strengthens and the Fed begins to raise interest rates, he said.
“Real interest rates are moving higher,” Gross said on Bloomberg Radio.
Fixed mortgage rates tend to track the yield on the 10-year Treasury bond, which had risen nearly a quarter of a percentage point from Tuesday to Thursday.
