Interest rates on fixed-rate mortgages dropped in early May after two straight monthly increases, but those on adjustable-rate mortgages continued climbing for the seventh consecutive month, the government reports.
The Federal Home Loan Bank Board said fixed rates fell 0.09 percentage points to 11.50 percent. The April fixed rate of 11.59 had been the highest since December 1985 when rates averaged 12.01 percent.Rates on adjustable-rate mortgages rose 0.14 percentage points to 10.29 percent in early May, the highest since December 1985 when rates averaged 10.39 percent, the bank board said.
The drop in the fixed rate reflected an easing of other long-term interest rates, the bank board said. Interest rates overall began falling recently after being propped up by the Federal Reserve for 15 months to stem inflation.
"The increase in the ARM rate was caused primarily by a decrease in the number of institutions offering first-year, below-market, `teaser' rates on these types of loans," according to James Barth, bank board chief economist.
Barth said because of the higher rates for adjustable-rate mortgages, "the ARMs portion of all loans closed declined to 53 percent in early May, down from 55 percent in the previous month and the smallest in a year."