Posted on: Friday, October 1, 2004

Mortgage rates ease upward, still low

By Leigh Strope
Associated Press

WASHINGTON — Mortgage rates inched up this week, but remained well below the year-high levels set in the spring.

Freddie Mac, in its weekly survey released yesterday, reported that rates on 30-year, fixed-rate mortgages increased to 5.72 percent for the week ending Sept. 30. That was up from 5.70 percent last week.

Rates on 30-year mortgages hit a high this year of 6.34 percent the week of May 13. Rates have slowly drifted downward as economic activity cooled in the late spring and early summer and inflation fears receded.

For 15-year, fixed-rate mortgages, a popular option for refinancing, rates rose to 5.12 percent, up from 5.10 percent last week. Rates on one-year adjustable rate mortgages dipped to 3.97 percent, compared with 4 percent the previous week.

Mortgage rates have remained restrained even as the Federal Reserve has raised a key short-term interest rate.

The Fed last week bumped up the target for its federal funds rate to 1.75 percent, marking the third rate increase since June. The funds rate is the interest banks charge each other on overnight loans and is the Fed's main tool for influencing economic activity.

Economists say the Fed needs to slowly raise the funds rate from extraordinarily low levels to more normal levels to protect against inflation becoming a problem in the future.

"Low mortgage rates continue to keep the housing market vibrant," said Frank Nothaft, Freddie Mac's chief economist. He expects rates on 30-year, fixed-rate mortgages to remain below 6 percent for the rest of the year.

The nationwide averages for mortgage rates do not include add-on fees known as points. All three mortgage categories carried a 0.6 point fee.

A year ago, rates on 30-year mortgages averaged 5.98 percent, with 15-year mortgages at 5.30 percent and one-year ARMs at 3.77 percent.