Mortgage rates posted the biggest one-week increase since February after a combination of inflation news, multi-billion dollar bank write downs and loss reserves, and fewer loan purchases by Fannie Mae and Freddie Mac. Inflation worries were fueled by the June Consumer Price Index and comments favoring interest rate increases from two members of the Federal Reserve. Poor quarterly bank earnings were a direct result of deteriorating loans, making mortgage bond investors increasingly nervous about further defaults. And despite available capital from the Federal Reserve and the Treasury, Fannie Mae and Freddie Mac continue to raise capital their way, which means buying fewer mortgages. While each of these factors played a part in this week's increase, weak economic growth could have a downward influence on mortgage rates in the weeks to come.
Mortgage rates have been on a wild ride since the beginning of the year. The average 30-year fixed mortgage rate was as low as 5.57 percent six months ago, meaning that a $200,000 loan would have carried a monthly payment of $1,144.38. But at today's rate of 6.77 percent, a $200,000 loan would mean a monthly payment of $1,299.86.
