After weeks of rises, mortgage rates drop back

WASHINGTON - Rates for 30-year home loans fell back this week after soaring to the highest level in seven months a week earlier.

The average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier, mortgage company Freddie Mac said.

Rates had risen for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, had been climbing as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

But data released Wednesday suggested that inflation remains largely in check, and the yield on the 10-year Treasury note has fallen back from an 8-month high of 4.01 percent reached last week.

Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

Mortgage applications for home purchases fell 3.5 percent for the week ending June 12, according to the Mortgage Bankers Association, while refinancing applications were down 23 percent from a week earlier.

The average rate on a 15-year fixed-rate mortgage fell to 4.89 percent, down from 5.06 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 4.97 percent, down from 5.17 percent last week. Rates on one-year, adjustable-rate mortgages fell to 4.95 percent from 5.04 percent.

The rates do not include add-on fees known as points. The nationwide fee averaged 0.7 point last week for 30-year and 15-year mortgages. Fees averaged 0.6 point for five-year and one-year adjustable rate loans. *