Mortgage rates rise to 10-month high
By Holden Lewis • Bankrate.com

Those low mortgage rates were fun while they lasted.

Mortgage rates went up for the fourth week in a row and have risen well over half a percentage point in the last month. The 30-year fixed is at its highest point in 10 months.

The benchmark 30-year fixed-rate mortgage rose 10 basis points, to 6.62 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 0.39 discount and origination points. One year ago, the mortgage index was 6.76 percent; four weeks ago, it was 6.02 percent.

The benchmark 15-year fixed-rate mortgage rose 8 basis points, to 6.2 percent, and the 30-year jumbo went up 11 basis points, to 7.71 percent. The benchmark 5/1 adjustable-rate mortgage rose 17 basis points, to 6.24 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 18, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

This is the highest rate for the 30-year fixed since Bankrate's Aug. 15 survey, when it was 6.68 percent.

Just five months ago, in the middle of January, the 30-year fixed was 5.57 percent. It has gone up more than a percentage point since then.

Inflation and credit move the needle
Many factors govern mortgage rates, and two of those factors are inflation and credit quality. Both are pushing rates higher. Most consumers are aware that prices are rising, even if the government says inflation is still relatively low. That's the inflation factor.

And millions of homeowners are behind on their mortgage payments, or their homes are in foreclosure. That's the credit-quality factor.

Mix inflation with a foreclosure wave, and you get higher mortgage rates, with lenders reluctant to lend.

It reminds Daniel Pantoja, a manager for Advent Mortgage, in Louisville, Ky., of the 1970s, "when people couldn't afford to buy a house because of where rates were at, and there were economic issues, with inflation, rising rates and high fuel prices."

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One big difference is that mortgage rates were much higher in the late 1970s, topping 18 percent. Back then, high rates kept people from borrowing; now, strict lending standards make it hard to qualify for a mortgage.

"Now banks don't want to do mortgages," says Alan Rosenbaum, president of GuardHill Financial, a mortgage brokerage in New York City. "That's pulling our economy deeper and deeper into recession."

Rate rise on the horizon?
The Federal Reserve's rate policy panel meets next week, and is expected to keep short-term rates unchanged. But some Fed members have begun to talk of the imperative to fight inflation -- implying that the central bank might raise short-term rates sometime this year.

"I think that's a mistake," Rosenbaum says. "Yes, there's inflation -- but there's also recession here. Raising interest rates is not going to promote people into spending more money."

There's another way of looking at it: A Fed rate hike this summer or fall might be seen as anti-inflationary, which could cause long-term mortgage rates to fall. Short-term and long-term rates don't always move in the same direction.

Pantoja isn't yet advocating for a Fed rate hike, but he doesn't mind when Fed officials jawbone about the perils of inflation. A few days of that, he says, might send mortgage rates lower.