Mortgage rates rise; 30-year at 5.85%

NEW YORK (Reuters) — Mortgage rates rose last week as the Federal Reserve continued to increase its target for short-term interest rates.

The Mortgage Bankers Association said Wednesday that fixed 30-year mortgage rates rose to an average of 5.85%, excluding fees, compared with 5.81% in the previous week and 5.64% in early September.

While the fixed 30-year mortgage rate is below its 2005 high of 6.08% reached in late March, it is above the 2005 low of 5.47% of late June. It is also higher than where it stood a year ago when the rate was 5.64%.

Fixed 15-year mortgage rates last week averaged 5.44%, up from 5.38% the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.02% from 4.94%.
With ARMs, low initial payments allow borrowers to buy homes they may not be able to afford with a fixed-rate loan.

The Fed is increasingly concerned about the red-hot housing market, which has been setting records for five years. Interest rates on 30-year mortgages have unexpectedly remained under 6% even as the Fed has raised short-term rates 11 times since June 2004 to 3.75%, supporting home sales.

Fed Chairman Alan Greenspan has been speaking out about the use of risky mortgage products, such as interest-only loans, to buy expensive homes that people otherwise couldn't afford.

The group's survey covers about 50% of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.

Contributing: Sue Kirchhoff, USA TODAY, The Associated Press