Mortgage rates climb

WASHINGTON (AP) — Rates on 30-year mortgages rose this week to the highest level in 2 1/2 years as financial markets began to worry more about inflation.

Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.43 percent this week, up from 6.35 percent last week.

The increase meant that rates surpassed the previous 2006 high of 6.37 percent set in early March and climbed to the highest level since the 30-year mortgage was at 6.44 percent the week of Sept. 5, 2003.

Analysts attributed the increase to a pickup in economic growth in the early months of 2006 and renewed concerns about higher energy prices.

“There is concern that the continued high level of energy costs may lead to inflation in other sectors of the economy,” said Frank Nothaft, chief economist at Freddie Mac. “Fear of inflation leads to higher mortgage rates, like the ones we see this week.”

The Federal Reserve on March 28 increased the federal funds rate, the interest that banks charge each other, for a 15th time to 4.75 percent with many economists thinking the central bank will move to the sidelines after raising the rate once more to 5 percent in May.

But Nothaft said the economy may continue growing at a faster pace this year and if that occurs, the Fed could boost interest rates more than financial markets are currently expecting, meaning further increases in mortgage rates.