Home loan rates at five-year high

July 24, 2008

Home loan rates at five-year high

A DEAL to save the United States housing market cannot come too soon: The troubles of mortgage finance giants are pushing up home loan rates to their highest levels in five years.

The average interest rate for 30-year fixed-rate mortgages rose to 6.71per cent on Tuesday, from 6.44per cent last Friday, according to HSH Associates, a publisher of consumer rates. The average rate for very big, so-called 'jumbo loans', which cannot be sold to Fannie Mae and Freddie Mac, was 7.8per cent, the highest since December 2000.

Loan rates are rising because of concerns in the financial markets about the future of Fannie Mae and Freddie Mac, which own or guarantee nearly half of the nation's US$12trillion (S$16.3trillion) mortgage market.

Worried that the companies may not be as big a support to the market as they have been, bond investors are driving up interest rates on securities backed by home loans. The added cost is being passed on to consumers via the mortgage markets. For a US$400,000 loan, the increase in 30-year rates in the last few days would add US$71 to a monthly bill, or US$852 a year.

The rate hike is of greatest concern to home owners whose mortgages required them to pay only the interest on their loans for the first few years. If such borrowers are unable to refinance into lower-cost loans, many of them will face the prospect of having to pay both interest and principal at higher, adjustable rates.

For borrowers with a US$400,000 loan, such a jump could send their monthly payments to US$2,338 from US$1,417, estimates mortgage broker Louis Barnes.

NEW YORK TIMES



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