Mortgage rates rise 6th week in a row
By Daniel P. Ray • Bankrate.com

A key mortgage rate rose to its highest level in 10 months, propelled by better-than-expected economic growth and a realization among investors that there will be no interest rate cuts from the Fed any time soon.

The benchmark 30-year, fixed-rate mortgage rose 14 basis points to 6.61 percent, a Bankrate.com national survey of large lenders found. A basis point is one-hundredth of 1 percentage point. The last time the 30-year, fixed-rate mortgage was higher was Aug. 2, 2006, when it was 6.65 percent.

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 6.69 percent; four weeks ago, it was 6.29 percent.

The 15-year, fixed-rate mortgage rose 12 basis points, to 6.33 percent. The 5/1 adjustable-rate mortgage rose 15 basis points, to 6.52 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 6, 2007, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

A strong report on the service sector's growth helped push rates higher. Analysts had predicted a slowdown. Instead, the nation's dominant employment sector shot up, the Institute for Supply Management's services index indicates. Fast growth in the sector would tend to be inflationary, since it could require wage increases for a fast-growing economy to find workers.

In addition, Fed Chairman Ben Bernanke repeated an inflation warning.

In a speech delivered by satellite to a monetary policy conference in Cape Town, South Africa, Bernanke sounded the inflation alarm this way: "Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside."

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The Fed had issued similar warnings before, through speeches by Fed governors and through the formal statements its rate-setting committee delivers after each of its meetings. This time it stuck, and investors gave up the long-clung-to hope that the Fed would lower rates soon.

Stocks fell, and more importantly for mortgage lenders, the yield from the 10-year Treasury moved up and flirted with the 5 percent mark in trading Tuesday and Wednesday. The last time it finished above 5 percent was in August 2006.

The 10-year Treasury is closely watched by mortgage lenders. Investors buy bundles of mortgages, and because the average mortgage lasts slightly less than 10 years, these mortgage bundles tend to be viewed as a similar investment and move in the same direction as the 10-year Treasury.