NATION Mortgage rates continue to increase

More borrowers are choosing adjustable rate mortgages.
CBS MARKETWATCH
CHICAGO -- Mortgage rates moved up for the seventh straight week, with the benchmark 30-year loan hitting a national average of 6.34 percent in the week ending Friday.
The hike boosted the 30-year loan from 6.14 percent the previous week, Freddie Mac reported this week, and left it more than a full percentage point above its modern-day low of 5.21 percent reached June 13. The rate is the highest since Aug. 2, 2002, when the 30-year loan stood at 6.43 percent.
"Signs that the economy is finally improving has generated upward pressure on fixed-rate mortgage rates over these past few weeks," said Frank Nothaft, Freddie Mac's chief economist.
The 15-year mortgage, a popular refinancing choice, also increased sharply, reaching 5.66 percent from 5.44 percent. The 15-year loan thus stood at its highest since October 2002, according to Freddie Mac.
Adjustable rate mortgages
The one-year Treasury-indexed adjustable-rate mortgage, which had been holding fairly steady, also took off this week, moving up to 3.8 percent from 3.68 percent a week earlier. The adjustable rate mortgage (ARM) is at its highest point since April.
All three loans required the payment of an average 0.7 points to achieve those rates. A point is 1 percent of the loan amount.
"Although the one-year ARM rate rose this week, the spread between the ARM and the 30-year fixed-rate mortgage reached its widest since 1986," Nothaft said. "And the spread could conceivably widen even more if long-term mortgage rates go up further, making ARMs even more attractive," he said.
Evidence of mortgage borrowers switching to ARMs was already evident in the Mortgage Bankers Association of America's weekly applications index that came out earlier this week.
The ARM share of activity increased to 21.7 percent in the week ended Aug. 1 from 20.6 percent the previous week, according to the MBA. When rates were at their nadir, ARMs were only 14 percent or so of the market.
The refinance share of mortgage activity decreased to 58.3 percent of total applications, from 60.4 percent.
Overall, though, mortgage applications held up well.
The MBA's application index increased by 1.1 percent to a reading of 983.2 on a seasonally adjusted basis from 972.4 one week earlier. The seasonally adjusted purchase index increased to 456.4 from 426.9, while the refinance index decreased to 4047.5 from 4145.8.
"The relatively modest drop in refinancing activity despite a rather sharp increase in interest rates indicates some borrowers decided this might be their last change to refinance before rates went up further," said Jay Brinkmann, MBA's vice president of research and economics.
The average interest rate for 30-year fixed-rate mortgages in the MBA survey surged to 6.37 percent from 5.87 percent one week earlier, with points decreasing to 1.36 from 1.64, including the origination fee, for 80 percent loan-to-value ratio loans. The MBA survey covers about 40 percent of the U.S. mortgage market.