Mortgage Forecast for 2007

Mortgage interest rates should rise slightly this year, but remain relatively low, say economists.

"Interest rates on 30-year fixed-rate mortgages are anticipated to increase 20 basis points over the course of 2007," said Frank Nothaft, chief economist at the Federal Home Loan Mortgage Corp. One basis point is equivalent to 1/100th percent.

Economists at FHLMC, commonly known as "Freddie Mac," say they expect the Federal Reserve Board, which sets monetary policy for the federal government, to keep Federal Reserve interest rates on hold. The economists say they expect the average rate for a 30-year, fixed-rate mortgage to increase to 6.4 percent by the end of 2007, and to average 6.5 percent in 2008.

At the same time rates for adjustable-rate mortgages also should remain steady. Freddie Mac is forecasting the rate for one-year ARMs to average 5.5 percent in both 2007 and 2008.

The average rate for a 30-year, fixed-rate mortgage was 6.14 percent in December 2006. The average for a one-year, adjustable-rate mortgage was 5.45 percent in December.

The share of business that mortgage lenders derive from adjustable-rate loans should dip in 2007 because the difference between fixed-rate loans and ARMs is relatively slight. However, the number of adjustable rate loans made in relation to the number of fixed-rate loans should rise in 2008 as the spread increases between rates for fixed-rate loans and ARMs, economists said.

Freddie Mac predicted that adjustable-rate loans would comprise about 13 percent of mortgages in 2007 and 15 percent of mortgages in 2008.

Local economists also were saying they expected mortgage interest rates to remain relatively steady in 2007.