Thursday, January 31, 2008

Mortgage Rates Ended 5-Week Descent

Mortgage rates finally ended their five-week descent following the Fed's decision to cut its federal funds rate by half of a percentage point to 3%, as announced on wednesday. For the sake of record-keeping, we may note that, in eight days, the Fed has cut rates by 1.25 percentage points, the fastest pace in 20 years.

After the Fed's move, market rates for 30-year notes and 10-year bonds rose steeply. By contrast, rates fell sharply for 3-month and 6-month bills. Fixed-interest mortgage rates are set by markets based on long-term money rates, and usually not by short-term rates. If bond investors fear that the Fed is letting inflation to grow out of control, then long-term rates could rise, as they did on Wednesday after the rate-cut decision.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage rose to 5.68% from last week's average of 5.48%. A year ago, 30-year mortgages stood at 6.34%. The rate is still hovering well below its historical average.

Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, rose to 5.17%, from 4.95% last week. Rates on 15-year mortgages were at 6.06% a year ago.

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) also moved up to 5.32% from last week's average of 5.13%. The five-year ARMs averaged 6.04% at this time last year.

One-year Treasury-indexed ARMs averaged 5.05%, up from 4.99% last week. At this time a year ago, the 1-year ARM averaged 5.54%

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