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US 30-year mortgage rate hits 7-1/2 year peak after sell-off in bond market

New York

INTEREST rates on US 30-year fixed-rate mortgages jumped to a 7-1/2-year high following a dramatic sell-off in the bond market that propelled the 10-year Treasury yield to its highest level since May 2011, Freddie Mac said on Thursday.

Borrowing costs on 30-year mortgages, the most widely held home loan type in the US, averaged 4.9 per cent in the week ended Oct 11, which was the highest since the week of April 14, 2011, the mortgage finance agency said.

The latest figure was up from 4.71 per cent the week before and 3.91 per cent a year ago, it said.

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On Tuesday, the benchmark 10-year Treasury yield rose to 3.261 per cent, the highest since May 2011, as investors pared their bond holdings on worries about rising inflation and a faster pace of interest rate hikes from the Federal Reserve.

The increase in mortgage rates, while still low by historic standards, is another headwind for the housing sector, which is already struggling from low home inventory and rising building costs, analysts said.

"Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand," Freddie Mac's chief economist Sam Khater said in a statement.

"While the monthly payment remains affordable due to the still low mortgage rate environment, the primary hurdle for many borrowers today is the down payment and that is the reason home sales have decreased in many high-priced markets," he added.

As for other types of home loans, 15-year mortgage rates averaged 4.29 per cent, up from 4.15 per cent a week earlier and 3.21 per cent the year before.

The interest rates on five-year adjustable mortgages averaged 4.07 per cent, up from 4.01 per cent the prior week and 3.16 per cent a year earlier. REUTERS