Rate inflation continues for home loans

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Mortgage rates are continuing their creep upward into the 5% range -- a trend that well may choke off the refi boom of late 2009 and provide a test for the real strength of the home lending market in 2010.

Freddie Mac’s widely watched survey found that rates averaged 5.14% this week for 30-year fixed home loans, up from 5.05% last week and slightly higher than at the same time last year. It was the fourth straight week of increases. For 15-year fixed mortgages, the typical rate was 4.54%, up from 4.45% a week earlier.

The Freddie Mac weekly survey assumed that borrowers had good credit, a 20% down payment or 20% equity in the case of refinancing, and paid 0.7% of the loan balance in upfront charges to the lender.

Tracking a rise in yields on long-term government debt, fixed mortgage rates have risen steadily now for a month since hitting a record low of 4.71% the week of Dec. 3.

Government efforts to keep rates low will soon start drying up a bit as well. A Federal Reserve program to spend $1.25 trillion supporting mortgage-backed securities is scheduled to end in the spring.

Every tick up, of course, makes it less likely that someone with an existing loan will refinance their house to save money.

But rates in the 5% range remain extraordinarily low by historical standards, offering a huge incentive for first-time homeowners and trade-up buyers as well. (When my wife and I got our first home loan in the early 1980s we were thrilled that then-Federal Reserve Chairman Paul A. Volcker had gotten rates down below 12%.)

Frank Nothaft, Freddie Mac’s vice president and chief economist, said monthly principal and interest payments for a 30-year fixed-rate mortgage are about one-third less than in May 2000, when rates peaked at 8.6%. ‘This translates into almost 50% less in interest payments over the full 30-year term,’ Nothaft said.

If that can’t push a few more buyers into the housing market, it’s hard to imagine what can.

-- E. Scott Reckard