Fixed mortgage rates resume upward climb

One day it looked like a huge part of the economy was taking a dive. The next day it bobbed back to the surface. The day after that, the economy was going swimmingly. The net result was another rise in mortgage rates.

The benchmark 30-year fixed-rate mortgage rose 4 basis points to 6.36 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 0.26 discount and origination points. One year ago, the mortgage index was 5.82 percent, and four weeks ago it was 6.37 percent.

The 15-year fixed-rate mortgage rose 4 basis points to 5.92 percent. The 5/1 adjustable-rate mortgage fell 4 basis points to 5.81 percent.

Used home prices slow ...
On Monday, the National Association of Realtors said that used home sales slowed their pace in October, down to an annual rate of 7.09 million units from September's rate of 7.29 million units. David Lereah, the Realtors' chief economist, said it was becoming less of a seller's market and more of a balanced market.

"Housing activity has peaked and is coming down a bit, and we expect further cooling in the coming months," Lereah said in a quote that got a lot of attention, a lot of it misconstrued. He wasn't saying that a bubble had burst or that house prices would fall nationwide. Only that the amazing pace of home sales was slowing. October's rate was down 2.7 percent from the previous month, but up 3.7 percent from the same month a year before.

It's still a hot market when the annual sales rate is more than 7 million used houses. But bond markets paid attention to the slowdown, not the bigger picture, and mortgage rates dipped at the beginning of the week.

... but new home sales rock
On Tuesday, the Commerce Department reported that new home sales were up 13 percent in October compared to the previous month. It was the biggest one-month gain in 12 years. New homes were sold at an annual rate of 1.424 million units. Bond traders concluded that the housing market was as strong as Moby Dick, just a day after they had believed it was as weak as a guppy. Bond yields -- and mortgage rates -- rose higher than they had fallen the previous day.

On Wednesday the Commerce Department said the overall economy grew at an annual rate of 4.3 percent from July through September. That was better than the initial estimate made a month earlier. The news shored up the floor under mortgage rates without boosting them much.

Mortgage rates have been on a mostly upward path since July, and mortgage bankers say their customers expect rates to keep rising. That expectation could be driving some of the sharp rise in new-home sales as rush to lock in favorable mortgage rates. But that doesn't explain the decline in used-home sales.

Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Sewall's Point, Fla., predicts that mortgage rates will remain on a "not dramatic" upward path for a while, and that the higher rates won't have much effect on home sales. "Even if interest rates go up half a point or a point, for the average person it's not going to affect them more than $20 or $30, after taxes, per week," he says.

In addition to rising mortgage rates, home buyers will have other costs on their minds, Sahnger says -- namely, how much they will have to spend to heat and cool their homes and the price of gasoline.

Home heating costs are especially worrisome in the northern part of the country this winter. Bob Moulton, president of Americana Mortgage in Long Island, N.Y., says buyers occasionally ask to delay their closings until after January or February, just so they won't have to pay those utility bills.

Costly energy means longer mortgages?
Lately, some of Moulton's clients have asked about another way to save money: getting 40-year mortgages. "I have a lot of inquiries on the 40-year, and I am writing them, but not as many as the inquiries I'm getting," Moulton says. "I think, as rates go up, we are going to see more."

Buyers frequently conclude that they can't quite afford the houses they want if they get 30-year, fixed-rate mortgages. Moulton lays out the options: adjustable-rate mortgages, interest-only loans, and 40-year mortgages, with either fixed or adjustable rates. Some buyers just don't feel comfortable getting adjustables, especially interest-only adjustables, so they get 40-year, fixed-rate loans.

The monthly savings is fairly small with a 40-year loan, partly because the rate tends to be about one-eighth of a percentage point higher. Someone who borrows $250,000 would pay principal and interest of $1,539 a month with a 30-year loan at 6.25 percent and $1,442 a month with a 40-year loan at 6.375 percent. The monthly savings: $97 a month, but the payments go on 10 years longer.

Probably no one will actually pay off a 40-year loan over 40 years, though; those owners will sell their houses or refinance their mortgages long before then.