Mortgage rates hit 4-year high

WASHINGTON — Rates on 30-year mortgages climbed to the highest level in more than four years this week on investor fears about inflation.

Mortgage lender Freddie Mac said Thursday that rates rose to a nationwide average of 6.71 percent, up from 6.63 percent last week, for 30-year, fixed-rate mortgages.

It was the highest level since the week of May 31, 2002, when rates averaged 6.76 percent.

Rising mortgage rates are contributing to a housing sector slowdown after five boom years powered by the lowest mortgage rates in decades.

Analysts predict that sales of new and existing homes will decline by more than 10 percent as higher mortgage rates make ownership more costly.

One year ago, when 30-year mortgages averaged 5.57 percent, the monthly payment on a $130,000 mortgage would have been $743.85. At today's rates, the payment would be $839.72 a month.

A variety of mortgage types saw rates increase this week, gains that were attributed to growing worries about inflation and the likely reaction to those concerns at the Federal Reserve.

The Fed meets next week and financial markets view it as a virtual certainty that the central bank will boost rates for the 17th consecutive time.

"Financial markets believe that the current rate of inflation is above the Fed's comfort zone, which will lead to more rate hikes in the near future," said Frank Nothaft, Freddie Mac's chief economist. He added that financial markets are expecting a June rate increase, and they are concerned about whether the Fed will also raise rates in August.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, increased this week to 6.36 percent, up from 6.25 percent last week. A year ago, the rate was 5.16 percent.

Rates on one-year adjustable rate mortgages rose to 5.75 percent, up from 5.66 percent last week and the highest level since one-year ARMs averaged 5.77 percent the week of Aug. 3, 2001. A year ago, the rate was 4.23 percent.

Rates on five-year adjustable-rate mortgages climbed to 6.32 percent, up from 6.23 percent last week. A year ago, the rate was 5.05 percent.