Interest Rate Roundup

Here's a look at the state of interest rates on five common consumer banking products and the latest rates from Bankrate.com's weekly national survey of large banks and thrifts conducted Sept. 21, 2005.

Mortgages
Rate: 5.88 percent (30-year fixed) Average Points: 0.36
Mortgage rates increased slightly as the Federal Reserve raised short-term interest rates for the 11th consecutive time and oil prices remained volatile. The average 30-year fixed-rate mortgage increased from 5.84 percent to 5.88 percent, and the average 15-year fixed-mortgage rate rose from 5.44 percent to 5.5 percent. The average jumbo 30-year fixed rate climbed from 6.02 percent to 6.05 percent. Adjustable-rate mortgages also moved slightly higher, with the average 5/1 adjustable-rate mortgage rising from 5.4 percent to 5.46 percent, while the average one-year ARM ticked higher from 4.87 percent to 4.9 percent. In raising interest rates Sept. 20, the Fed acknowledged the short-term economic impact of Hurricane Katrina but indicated that over the long term it will "not pose a more persistent threat." The Fed instead prefers to focus on inflation, which is sweet music to bond investors. The Fed's aim to keep inflation low has been a prime contributor to the decline in long-term government bond yields and mortgage rates over the past 15 months.

Home equity products
Rates: 6.76 percent (line of credit); 7.18 percent (loan)
Rates for both fixed- and variable-rate home equity products increased this week. The average fixed-rate home equity loan rose 2 basis points, to 7.18 percent, while the average variable-rate home equity line of credit nosed 1 basis point higher, to 6.76 percent. A basis point is one hundredth of 1 percentage point. This week's Fed interest-rate hike spells higher rates for HELOC borrowers, perhaps as soon as their next monthly statement. HELOCs are predominantly pegged to the prime rate and increase in accordance with each Fed hike, a trend that will not change if the Fed follows through with additional hikes in an effort to keep inflation contained. But the Fed could hold off if hurricanes Katrina and Rita prove to be a one-two punch to the economy that threatens more than anticipated growth from Katrina alone.

Certificates of deposit
Yields: 3.00 percent (one-year CD yield); 3.79 percent (five-year CD yield)
The average one-year CD yield hit the 3 percent mark for the first time since September 2001, rising from 2.98 percent last week, and the average five-year CD yield tiptoed higher to 3.79 percent. But improvement in certificate of deposit yields has come at a snail's pace in the past few weeks. However, the Fed's latest interest rate increase, and an indication that more are likely, might mean more substantive improvement in CD yields in coming weeks. The caveat to that is whatever havoc may be wreaked by Hurricane Rita, which in addition to threatening life and property along the Texas Gulf Coast, is having a Katrina-like effect on oil prices. Any significant disruption to oil production and refining after the storm could propel oil prices still higher. This would be detrimental to the health of consumer spending and increase calls for the Fed to hold off from further rate hikes. If subsequent Fed rate hikes do unfold, the latest improvement in CD yields will not be the last.