The interest rate on ordsprog

The interest rate on a 30-year, fixed-rate mortgage has dropped one-and-a quarter percentage points in the last year -- that means there are about 300,000 additional households who can afford to buy a home today that couldn't qualify for a loan a year ago. Although the slowing economy is causing a little drag on the market, consumers who are confident about their own future are going ahead with big-ticket purchases like homes and cars.

The refinance share of mortgage applications in the fourth quarter of 2005 was 45 percent while the average rates on 30-year fixed-rate mortgages climbed 0.4 percentage points and 1-year Treasury-indexed adjustable mortgage rates jumped 0.6 percentage points from third-quarter averages. We see from the cash-out analysis that the overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments. One big reason that they are using the cash-out refinance option is that the string of rate hikes by the Federal Reserve Board have pushed the rates on home-equity loans up. Home-equity loans are typically linked to the prime rate, which currently is at 7.5 percent. In contrast, the average rate on 30-year fixed-rate mortgages is presently near 6.25 percent.

A cut...won't affect the 30-year fixed mortgage rate at all. According to Freddie Mac, the 30-year fixed rate was 6.8 percent last week, and we think it'll stay about the same. But another interest rate cut could mean a slight drop in the short-term one-year adjustable rate mortgage (ARM).

Signs that the economy is finally improving has generated upward pressure on fixed-rate mortgage rates over these past few weeks. Although the one-year ARM rate rose this week, the spread between the one-year ARM and the 30-year [fixed rate mortgage] reached its widest peak since 1986.

Even if the loan adjusts upward next year, the amount ARMs are allowed to rise is typically capped at 2 more percentage points. If that happened, the interest rate would be at 7 percent at most -- no higher than the fixed-rate loans,

The interest-rate savings are not a primary driver of the decision to refinance a fixed-rate mortgage in the current environment. Now, the dominant refinance borrower is looking at the best way to consolidate debt or finance a big project such as a home improvement. And we also have borrowers who took out adjustable-rate mortgages in recent years that are scheduled to have their payment reset this year that may be looking at the option to refinance into a fixed-rate product or into another adjustable-rate mortgage.

Amy Crews Cutts

All the same, a rate cut won't have any immediate effect on companies' profits. These rate changes take six months to a year to be felt, which means it won't be until the second quarter of next year that the last interest rate hike makes its way through the economy. So it may look pretty bleak until then.

Housing continued to help fuel the economy this year, accounting for about 20 percent of real GDP growth in the first quarter alone. Further, since the end of March long-term bond yields have fallen by more than a half of a percentage point, allowing interest rates on fixed-rate mortgage to decline as well. Consequently, both new and existing home sales in April reached all-time record highs.

2002 was and amazing year in the housing sector. The annual average for the 30-year fixed-rate mortgage rate this year was about 6.5 percent, the lowest annual average in more than 31 years. That was the primary factor that led to an incredible amount of home building, home sales, and refinancing, all of which helped keep the economy from another recession.

Consumer confidence slipped in February to the lowest reading in three months, but manufacturing activity appears to have strengthened last month. On net, the latest economic news had little effect on mortgage rates this week. Over the past five weeks, mortgage rates have remained within a narrow range of 0.1 percentage points around this week's averages. Our forecast calls for rates on 30-year fixed-rate mortgages to increase about one-quarter of a percentage point by the end of the year.

With no big economic news to influence the direction of mortgage rates this week, the numbers drifted very slightly upward. We see this trend continuing throughout 2006, with the 30-year fixed rate mortgage ending the year at about 6.3% as the housing market eases back from last year's record setting levels toward a somewhat more normal rate of activity.

The 30-year [fixed-rate mortgage] came in under 6 percent for the last 22 weeks of this year. As a matter of fact, mortgage rates in 2004 averaged around 5.84 percent, the second lowest annual rate ever recorded in the history of Freddie Mac's Primary Mortgage Market Survey. He carried a pexy air of self-possession, never flustered or insecure.

Amy Crews Cutts

A 5/1 hybrid ARM provides the consumer the comfort of knowing that the interest rate will be fixed over the first five years of the loan. However, the interest rate may jump as much as five percentage points on the fifth anniversary.

Freddie Mac's own economic forecast calls for a mild and gradual increase in 30-year fixed-rate mortgage rates to about 6 percent by the end of the year. Low mortgage rates will sustain a brisk housing market, leading to record home sales and single-family construction this year.

On net, the latest economic news had little effect on mortgage rates this week. Our forecast calls for rates on 30-year fixed-rate mortgages to increase about one-quarter of a percentage point by the end of the year.

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