Mortgage rates hit 3-month high
By Holden Lewis • Bankrate.com

Mortgage rates rose this week to their highest levels since the week before Halloween.

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The benchmark 30-year fixed-rate mortgage rose 10 basis points, to 6.42 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 0.34 discount and origination points. One year ago, the mortgage index was 6.28 percent; four weeks ago, it was 6.24 percent.

The 15-year fixed-rate mortgage rose 12 basis points, to 6.19 percent. The 5/1 adjustable-rate mortgage rose 9 basis points, to 6.3 percent.

Mortgage rates tend to rise when the economic outlook is good, and the week bore some pretty good news. The highlight was the report of the gross domestic product for the final three months of 2006. The report estimated that total economic output rose at an annual rate of 3.5 percent in the final quarter. That was better than expected, and much stronger than GDP growth in the third quarter (an annual rate of 2 percent).

Weekly national mortgage survey

Results of Bankrate.com's Jan. 31, 2007, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

The news propelled bond yields and long-term mortgage rates higher as a consequence of investors pulling their money out of bonds and into stocks, which promise a better return in a robust economy.

The 30-year rate hasn't been this high in Bankrate's weekly survey since Oct. 25, when it was 6.46 percent. After that, it fell six weeks in a row, and then reversed course. The 30-year rate has risen in seven of the past eight weeks; the exception was a week when it remained unchanged.

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Fed influence
This week's rise probably would have been smaller if not for timing of the Federal Reserve's rate-policy announcement. Bankrate's weekly mortgage survey is done on Wednesdays and is mostly completed by early afternoon. Around that time, the yield on the 10-year Treasury note was 4.88 percent, up 7 basis points from the previous week. Long-term mortgage rates tend to move in the same direction as Treasury yields.

Later in the afternoon, the Fed announced that it would keep short-term rates steady, as expected, and that it was still keeping a wary eye on inflation, lest it get out of control. Treasury yields quickly fell 7 basis points. Had the Fed announcement come early in the day, there probably wouldn't have been much change in the Bankrate survey, compared to last week.

In its statement, the Fed said the inflation rate is slowly falling, even as the economy expands. That will support the growing consensus that the Fed will hold rates steady through all or most of 2007.

"I think we can have stable rates for the rest of the year," says Michael Moskowitz, president of Equity Now, a New York-based mortgage lender. "I think that the economy is stronger than we expected it to be, yet inflation is not showing up. Inflation is moderate."

As long as house values hold up, steady rates are good news for people who need to refinance their mortgages. Moskowitz says the refi business is hot right now as people refinance to liberate cash or to get out of the way of rising ARM rates.