Highest mortgage rates in year slow refinancing

WASHINGTON -- Rates on benchmark 30-year mortgages climbed this week to the highest level in a year, slowing -- but not stopping -- refinancing activity.

The average rate on 30-year mortgages rose to 6.32 percent for the week ending Aug. 29, up from 6.28 percent last week, Freddie Mac, the mortgage giant reported Thursday in its weekly nationwide survey of mortgage rates.

This week's rate marked the highest since the week ending Aug. 2, 2002, when rates on 30-year mortgages averaged 6.43 percent.

The recent upward swing in mortgage rates marks a turnaround from the middle of June, when rates on 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades.

Factors contributing to rising mortgage rates include: signs that the economy is picking up speed, concern about swelling federal budget deficits and disappointment on Wall Street that the Federal Reserve didn't make a deeper interest rate cut in late June, economists say.

Those factors have pushed bond rates up, causing long-term mortgage rates to rise.

The Freddie Mac survey showed that rates on other mortgages also were up this week.

For 15-year fixed-rate mortgages, a popular option for refinancing, rates rose to 5.66 percent this week, up from 5.60 percent last week. Rates for one-year adjustable mortgages rose to 3.88 percent, compared with 3.84 percent.

Rising mortgage rates have cooled home-mortgage refinancing activity.

The Mortgage Bankers Association of America said its index of refinancing activity fell last week by 21.3 percent, the eighth straight week of decline. Still, refinancing activity accounted for 48.9 percent of all mortgage applications filed last week.

Higher mortgage rates "may have slowed the refinance market a little, but refinancing continues to make up about half of all applications for mortgages," said Frank Nothaft, Freddie Mac's chief economist.

Even with the higher mortgage rates, the housing market remains in good shape and is on track to post record sales this year, economists said. Sales of existing homes in July hit a record high, while-new home sales dipped but still posted the second-best month ever.

The nationwide averages for mortgage rates do not include add-on fees known as points. Each loan type had an average fee of 0.7 point this week.

A year ago, rates on 30-year mortgages averaged 6.22 percent, 15-year mortgages were 5.64 percent and one-year adjustable mortgages stood at 4.34 percent.

Economists are hopeful that any negative impact rising mortgage rates might have on the economy will be offset by stronger growth elsewhere, especially from businesses and more brisk spending by consumers as the president's tax cuts take hold.

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