Mortgage Rates Break Above Key 6% Line

CHICAGO – The benchmark 30-year fixed mortgage rate (search) pierced 6% for the first time in more than six months this week, according to the latest Freddie Mac survey on Thursday.

The average rate paid on a 30-year loan this week was 6.03%, up from last week's 5.98%, and the highest since hitting 6.04% in the week ended March 31.

The rate has been up for five weeks without pause, with the 10-year Treasury (search) yield, a major reference for the mortgage market, also hitting a six-month high of 4.5% this week.

The 10-year yield has so far been capped at that level, which defines the top of a two-year range. A break above could put added upward pressure on lending rates overall, particularly with the Federal Reserve sticking with a commitment to lift short-term borrowing rates as a strike against inflation.

Last year at this time, the popular 30-year fixed rate averaged 5.74%, said Freddie Mac (FRE) , which has tracked mortgages on a regular basis since the 1970s.

With average mortgage rates hovering at their lowest in decades over the past few years, 6% has recently come to signify an area that divides the super-low rates that lure scores into the mortgage market from rates that signify less-encouraging borrowing conditions.

Moves over and under this line have tended to influence consumer behavior, pushing some home buyers into the market sooner than they might otherwise have been buying, while convincing others to refinance now for fear of higher rates to come.

Freddie Mac is predicting rates to head north next year, its top economists said this week.

The mortgage giant pins some of its call for higher rates on solid economic growth, which can also increase homeownership.

"That acceleration of growth, coupled with the specter of higher energy costs, will translate into higher long-term mortgage rates in the coming months," said Frank Nothaft, Freddie Mac's chief economist.

The agency issued an updated outlook this week, pegging the 30-year rate to hover around 6% through the rest of the year and reach 6.4% in 2006.

But energy-driven inflation could prove the spoiler should the Fed's tack fail. The central bank defied most expectations last month when it raised interest rates just weeks after Hurricane Katrina hit. The Fed has been nearly unwavering in its concern that the storm would prove inflationary and not necessarily a drag on national economic growth.

Even with a string of weekly gains, rates have remained low enough propel home sales. Even if off an early-year pace, Freddie Mac expects sales at a record this year.

The weekly mortgage survey also found that the average paid for a 15-year loan this week was 5.62%, up from last week's 5.54% and last year's 5.14%.

With the Fed seen raising its benchmark rate next month and likely again in December, with some possibility for a January hike as well, adjustable mortgage rates are also on the rise.

The five-year Treasury-indexed hybrid adjustable-rate mortgage, or ARM, averaged 5.57% this week, up from last week when it averaged 5.48%. There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year.

One-year Treasury-indexed ARMs averaged 4.85%. That compares to 4.77% a week ago and rates near 4% a year ago.

To achieve the mortgage rates this week, the 30-year, 15-year and one-year loans required the payment of an average 0.6 point; the 5-year hybrid ARM required 0.7 point. A point equals 1% of the loan amount, charged as prepaid interest.