Mortgage rates surge to 9-month high
By Holden Lewis • Bankrate.com

The benchmark 30-year fixed-rate mortgage rose 27 basis points to 6.26 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 0.42 discount and origination points. One year ago, the mortgage index was 6.48 percent.

The benchmark 15-year fixed-rate mortgage rose 24 basis points to 5.59 percent. The benchmark 1-year adjustable-rate mortgage rose 6 basis points to 3.91 percent.

Rates haven't been this high since Oct. 23, when the average 30-year rate was 6.40 percent. The increase in the 30-year rate was the biggest one-week jump since Nov. 21, 2001, when the average 30-year rate rose from 6.58 percent to 6.90 percent.

With the 30-year rate now higher than 6.25 percent, curfew has been called on the refinancing party. It's over. And the clock ticked down fast: Less than two months ago, the average 30-year rate was 5.28 percent.

To put the rapid rise in perspective, consider this: If you borrowed $150,000 at 5.28 percent in the middle of June, your monthly principal and interest was $831.09. If you borrowed the same amount this week at 6.26 percent, your monthly principal and interest would be $924.55. Surely, some house hunters have had to adjust their expectations downward -- had to start shopping for less-expensive houses.

Why such a quick increase in rates?

It's the nature of rate turnarounds.

"When rates decide to go back the other way, it always happens violently," says Anthony Hsieh, president of HomeLoanCenter.com. He says it happened in 1994 and again in 1999.

He's right -- 30-year rates did make big jumps in those years -- but this increase has happened even faster. For example, rates jumped half a percentage point in four weeks in April and May of 1994, and rates jumped a little more than a percentage point from May to August of 1999. This jump of almost a percentage point happened in seven weeks.

There are other reasons for the meteoric rise in rates: jobless claims for the week ending July 19 were 386,000. That was the first time the number of claims had fallen below 400,000 since February. And orders for durable goods were up more than 2 percent in June. Much of that increase came from aircraft orders, but even when you toss those out, durable goods orders went up a little more than 1 percent in May and June combined. The good economic news caused rates to rise.

The Mortgage Bankers Association says mortgage applications dropped by 24 percent last week. People still are buying houses at a near-record pace, but homeowners have stomped on the refinancing brake. Refinancing applications fell by 33 percent last week. They're probably falling even more this week.

With applications drying up, this is a great time for home buyers to don their haggling shoes. Lenders want to give their employees work to do, and brokers want to use up their lines of credit, so they have an incentive to negotiate with borrowers. The first rate quote you get might not be the best that the lender can offer. It's a great time to comparison-shop. Make sure you let each lender know that you're getting quotes from other lenders.