Mortgage rates could hit 7% or higher, according to economists. With the 17th consecutive boost in benchmark short-term interest rates by the Federal Reserve last week, the ripple could be felt in the mortgage industry before long. In fact, rates have risen in anticipation of the Fed's actions. The ripple will extend into higher interest rates on credit cards and home equity loans. While the Fed has no direct control over the mortgage industry, mortgage rates have been moving higher. Freddie Mac reported last week that the national average for a 30-year fixed-rate mortgage has risen to 6.78% -- the highest level since May 2002. Borrowers with adjustable-rate mortgages will be more affected than those with fixed-rates. For those just now considering adjustable-rate mortgages, the benefits are much less than even one year ago. With the gap between fixed-rates and adjustable-rates narrowing, the overall savings of an adjustable rate is lessened drastically. The rising interest rates are intended to slow down consumer spending and other economic activities that indicate inflation. The economy has grown at the fastest pace in two-and-a-half years in the first quarter of 2006. The housing sector is one area, though, where growth is slowing. After the Fed's increase on Thursday, the majority of US banks raised their prime rates to 8.25%, up from 4% in 2004. That means that many homeowners with home equity lines of credit are paying 8.25% or more on the debt. Many experts expect to see many homeowners refinancing this debt back into a primary mortgage -- where rates remain slightly lower. "We've been spoiled with such low rates over the past few years," said Scott Goodrich of Monterey Bay Mortgage. "People's memories are short and young folks who have only experienced low rates, when they start seeing 7%, that might have an impact." Doreen Woo Ho, president of Wells Fargo's consumer credit group says that consumers are "realizing it's more expensive to borrow money now." Wells Fargo and other lenders are now offering home equity lines of credit with initial fixed-rate periods. This makes the repayment amount more predictable for a certain period of time. Despite rising rates, Americans are still going to be buying homes and taking out equity lines of credit says Woo Ho. "We certainly still have a healthy number of consumers who still see the need to borrow," she said. |
