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Inflation fears send mortgage rates up

01:00 AM EDT on Sunday, June 15, 2008

WASHINGTON (AP) — Rates on 30-year mortgages jumped to the highest level in nearly eight months, reflecting increased concerns about what the Federal Reserve might do to battle inflation.

Freddie Mac, the mortgage company, reported that 30-year fixed-rate mortgages averaged 6.32 percent last week. That was up sharply from 6.09 percent the previous week.

It was the highest level for 30-year mortgages since they averaged 6.33 percent for the week of Oct. 25.

Analysts attributed the big jump to increased concerns in financial markets that the Federal Reserve might be preparing to start raising interest rates in order to make sure that inflation does not get out of control.

“Mortgage rates jumped … after a number of Federal Reserve officials ... expressed concern over a threat of inflation,” said Frank Nothaft, Freddie Mac’s chief economist.

In a speech on Monday, Federal Reserve Chairman Ben Bernanke signaled deepening worries about inflation and said that the Fed would “strongly resist” any tendency for Americans’ expectations about price increases to become unsettled.

Those comments have led many investors to move up the date when they believe the Fed might start raising interest rates to some time later this year. From last September through April, the central bank was aggressively cutting rates to try to keep the economy from falling into a recession.

Other types of mortgages showed increases last week, according to the Freddie Mac survey.

Rates on 15-year fixed-rate mortgages rose to 5.93 percent, up from 5.65 percent the previous week.

The five-year adjustable-rate mortgage rose to 5.70 percent, up from 5.51 percent the previous week. The rate on a one-year adjustable-rate mortgage edged up to 5.09 percent from 5.06 percent the previous week.

The housing market is facing numerous headwinds at present from slumping prices, which are keeping potential buyers on the fence, to rising mortgage defaults, which are dumping more homes on an already glutted market.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year and 5-year mortgages averaged 0.7 point. The fee on 15-year and 1-year mortgages averaged 0.6 point.

A year ago, rates on 30-year mortgages stood at 6.33 percent, 15-year mortgage rates averaged 5.99 percent, 5-year adjustable-rate mortgages were at 6.37 percent and 1-year adjustable-rate mortgages were at 5.75 percent.