Mortgage rates inch up
By Holden Lewis • Bankrate.com

Mortgage rates went on a kiddie-coaster ride in the last week. They went up a little bit, gently glided back down, and ended up at about where they started.

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 5.95 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.44 discount and origination points. One year ago, the mortgage index was 7.12 percent.

Bankrate.com's mortgage survey is conducted every Wednesday, and it doesn't always capture swings in rates that occur between weekly surveys. Based on the movements of the yields on U.S. Treasury notes, it looks as though there was a mild swing between Wednesday and Wednesday as rates rose slightly, then fell, along with reports about progress in the war in Iraq.

Before the ground invasion started, economists and bankers speculated that the war would cause mortgage rates to rise. That happened: Rates are up about a quarter of a percentage point from two weeks ago. Even if rates have stabilized somewhat, they might continue to do what they did during the last week, rising slightly with military successes and falling back with military setbacks.

Then there's the matter of mortgage activity. People are lining up at mortgage offices as if they're brand-new Krispy Kreme stores. The Mortgage Bankers Association says last week was the third-busiest ever for refinancing applications. People rushed to apply when they saw rates going up.

Despite activity on Wall Street that nudged rates upward, "mortgage rates last week remained very favorable," says Phil Colling, economist for the Mortgage Bankers Association. "It is also likely that many homeowners who were hoping for lower mortgage rates before refinancing submitted a refinance application as rates rose the last two weeks."

The rise in interest rates over the last couple of weeks has yielded another result: Borrowers are taking another look at adjustable-rate mortgages. Some 14.7 percent of applicants chose adjustables last week, up from 12.8 percent the week before. As rates rise, more and more people will get adjustable-rate mortgages because initially they have lower rates than fixed-rate mortgages.

At a time like this, with fixed rates available at 6 percent or lower for borrowers with good credit, it makes sense to get a fixed-rate loan if you plan to stay in the house indefinitely. But if you believe you will live in the house five years or fewer, an adjustable mortgage might be the way to go. There are many breeds of adjustable-rate mortgages, or ARMs. One-year ARMs have an initial rate that lasts one year, then adjusts annually. One-year ARMs averaged 4.14 percent this week in the Bankrate.com survey.

There also are hybrid ARMs, which have an initial rate that lasts more than a year and adjust annually thereafter. For example, a 3/1 ARM's introductory rate lasts three years, then adjusts every year after that. A 5/1 ARM's introductory rate lasts five years.

If you're pretty sure that you'll be in the house for just three or four years, take a look at 3/1 ARMs; they might represent a substantial savings over a fixed-rate mortgage. Similarly, if you think you'll stay in the house five or six years, a 5/1 ARM might cost less in the long run than a fixed-rate mortgage.