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For a lot of homeowners, there's still an opportunity to refinance. Even if they missed an even better chance last week.
The benchmark 30-year fixed-rate mortgage rose 31 basis points, to 5.88 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 0.38 discount and origination points. One year ago, the mortgage index was 6.42 percent; four weeks ago, it was 6.14 percent.
The benchmark 15-year fixed-rate mortgage rose 27 basis points, to 5.38 percent. The benchmark 5/1 adjustable-rate mortgage rose 31 basis points, to 5.66 percent. And the benchmark jumbo 30-year fixed, for loans greater than $417,000, went up 18 basis points, to 7.03 percent.
An increase of 31 basis points is well over a quarter of a percentage point, and that's a big jump in just one week. But much of that increase is a matter of timing. Bankrate collects rate information on Wednesdays, mostly in the morning. On Jan. 23, mortgage rates skyrocketed more than a quarter of a percentage point, just a few hours after Bankrate had gathered its weekly rate data.
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| Weekly
national mortgage survey |
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| This week's rate: |
5.88% |
5.38%
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5.66%
|
| Change from last week: |
+0.31 |
+0.27
|
+0.31
|
| Monthly payment: |
$976.56 |
$1,337.70
|
$953.48
|
| Change from last week: |
+$32.45 |
+$23.42
|
+$32.10
|
Still a good time to refi
That unusually volatile day exaggerates the size of this week's rate increase. But it should not obscure this fact: Mortgage rates are lower now than they were in the fall, and people are taking advantage of the opportunity to refinance.
In the final three months of 2007, the average rate on a 30-year fixed was 6.29 percent in Bankrate's weekly survey. During the third quarter, the average rate was 6.6 percent. For many people who bought houses in 2006 and 2007, this month has been a chance to refinance. That especially goes for people who got adjustable-rate mortgages and who want to switch to fixed-rate loans.
According to the Mortgage Bankers Association, applications for refinances have gone up about 29 percent in the last four weeks. Some 73 percent of applicants last week were homeowners applying to refi. More than 90 percent of applicants wanted fixed-rate mortgages.
"We've been steadily busy," says Dan Green, a loan officer with Mobium Mortgage in Cincinnati. He has been reaching out to owners of what he calls "orphan mortgages" -- home loans that were originated by brokers or loan officers who are no longer in the business.
Why are mortgage rates up?
Many prospective borrowers might be surprised to find mortgage rates rising at a time when the Federal Reserve is cutting short-term rates rapidly. The Fed cut the overnight federal funds rate by three-quarters of a percentage point Jan. 22, then another one-half point Wednesday. Yet long-term mortgage rates went up.
Depending on whom you ask, you'll get a number of explanations of why mortgage rates are going up while the overnight rate is going down. One reason might be that investors are reacting to the Fed's rate moves by selling bonds and buying stocks. The reduced demand for bonds makes their yields go up, and mortgage rates follow.
Will consumers borrow and spend?
Then there's the concern that low short-term rates could eventually bring higher prices. "Inflation is very bad for mortgage rates," Green says. While mortgage rates might follow the Fed's lead and fall over the next few months, there's a possibility later of rampant inflation and rising mortgage rates.
"By the time the changes make their way through the economy, we might find that the Fed did too much," Green says.
In his blog, Green likens the dance between the economy and the Fed to the proverbial "fool in the shower" who turns on the water, finds it too cold, then turns the hot water full blast, then gets scalded, so he turns the water back to cold again.
John Burford, vice president and investment portfolio manager for the International Bank of Miami, thinks another dash of hot -- or is it cold? -- water is in the offing from the Fed, "because the extent of the mortgage problem is probably deeper and more extensive than a lot of people realize." It took five years for the housing bubble to inflate, and it will take a while for it to wind down, he says.
The Fed's rate cuts aren't as beneficial to homebuyers as they are to homeowners who have balances on their home equity lines of credit, Burford says, because HELOC rates will fall 1.25 percentage points in the next billing cycle. He believes that consumers will react the way the Fed wants them to: by borrowing and spending.
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This week: July 17 - July 23 
