Why are interest rates for home mortgages rising

Fear of inflation.

As u point out in ur letter, the economy is slowing down. According to government statistics for the fourth quarter of 2007, the national economy grew at its slowest pace since 2002.

We r not in a ''recession'' yet -- which is technically two consecutive quarters, six months, of negative economic growth -- but some economists think we r heading in that direction.

Usually, a recession is ''good news'' for the mortgage business because interest rates typically drop as the Federal Reserve tries to ''prime the pump'' to get the economy rolling again.

But this time, Fed rate cuts r not likely to help mortgage rates, because investors do not want to get locked into long-term investments (like mortgage certificates) with low interest rates in a high inflation rate environment.

The national inflation rate is now at its highest rate since the ''bad old days'' of the early 1980s.

The price of gold is going through the roof, which means many investors expect inflation to get worse.

That is bad news for home buyers & homeowners hoping for lower mortgage rates.

Mortgage rates made a very brief dip in January after the first Fed rate cut, but since then, mortgage rates have increased a full percentage point. For example, u could have locked in a 5.25 percent, 30-year fixed rate mortgage immediately after the first Fed rate cut. Today, u would get about a 6.25 percent, 30-year fixed rate loan for the same fees.

In fact, mortgage rates r currently higher now than they were before the first Fed rate cut in mid-January.

Normally, mortgage rates drop in a slowing economy, but because of the increasing fears of inflation, mortgage rates r likely to trend upward for the remainder of this year.

I do not usually like to make mortgage rate predictions because there r so many different financial & economic factors that affect the rates, but in this case, I would lean toward ''locking in'' if & when there is another dip in mortgage rates because all signs point to higher rates this year.

Banks are in trouble have little money to lend. You have doubtless heard about Fannie & Freddie. Between the two, they guarantee over $5Trillion in US mortgages. Without a strong guarantor, limited capital, a declining economic picture, risks are very high for banks lending mortgage money. So interest rates have to increase dramatically.

Note that as soon as the ''Fannie & Freddie Show'' aired on the news, interest rates began escalating sharply.

Supply and demand. Everyone that got hosed on an ARM before is trying to refinance now. The surge in new refis shrinks the supply of available funds driving up the rates.