Tuesday, February 28, 2006

Weekly interest rates

Mortgage rates continued their roller coaster ride in February, according to Freddie Mac's weekly survey. The rate for 30-year fixed rate mortgages ended the month at an average of 6.26 percent, down ever so slightly from the week before's average of 6.28 percent. A year earlier, the average was 5.69 percent, which is just a mere difference of 58 basis points. (A basis point is 1/100th of 1 percent.)
Putting that in monetary terms, the difference between a $400,000 mortgage at 6.28 percent and 6.26 percent a practically minuscule $5.00 a month.
The average for 15-year fixed loans slipped, too. But only by half as much. It was 5.91 percent vs. 5.92 percent the week before. But a year ago, the 15-year rate was 5.22 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages were the anomaly as February came to a close. They averaged 5.96 percent, up a basis point from the week before. But the average on one-year Treasury-indexed ARMs dipped from 5.36 percent to 5.32 percent. A year ago, the rates on these two loan products were 5.05 percent and 4.16 percent, respectively.
Expect more of the same in the coming months, according to Freddie Mac's chief economist, Frank Nothaft, who says, "Over the long term, we expect mortgage rates will bounce back and forth a bit, remaining near current levels."
Although long-term interest rates have only climbed from 5.75 to 6.25 or a measly one-half a percent, loan programs that have been based upon the Federal Funds Rate or the Prime Lending Rate are receiving more attention.
Last February I helped some buyers obtain a Home Equity Line of Credit. At that time the prime lending rate was 5.5 percent. Over the weekend I took a loan application for another Home Equity Line of Credit. The prime lending rate is now 7.5 percent. The prime lending rate is a common index for home equity loans.
So while the long term rates have increased by one-half a percent, the prime has increased by a full 2 percentage points and is expected to increase another quarter percent within the next few months. Many borrowers who have home equity loans are converting into long-term fixed rates before further rate increases. Watch for this trend to continue.


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