Mortgage rates headed higher this week on the strength of a better-than-expected employment report, ending five straight weeks of declines that sent average rates on some loan types to new record lows.

Average interest rates on 30-year fixed-rate mortgages rose to 3.42 percent this week, up from last week's 3.35 percent, a near-record low, according to the weekly Freddie Mac rate survey. The average on 15-year fixed-rate loans, often used for refinancing, increased to 2.61 percent, up from last week's all-time low of 2.56 percent.

Initial rates on 5-year Treasury indexed adjustable-rate mortgages (ARMs) were up to 2.58 percent, compared to 2.56 percent last week, also an all-time low.

Improving employment figures cited

Frank Nothaft, Freddie Mac chief economist, said rates increased following last Friday's jobs report, which showed the economy added 165,000 jobs in April. That was the largest increase yet this year and surpassed economist's expectations.

Revisions to the February and March reports by the Labor Department showed another 114,000 jobs added during those months, dropping the unemployment rate to 7.5 percent, the lowest in more than four years.

Mortgage rates often rise on expectations of a strengthening economy, which increases the demand for credit overall.

Refinance demand highest in 5 months

The steady decline in mortgage rates in recent weeks has led to an increase in mortgage refinance activity, which last week rose to its highest level since December, when rates were also flirting with record lows. Refinance demand increased 8 percent last week before Friday's employment announcement, according to yesterday's figures from the Mortgage Bankers Association.

Average rates cited in the Freddie Mac survey are based on mortgages with a loan-to-value ratio of 80 percent or better. Fixed-rate loans include an average of 0.7 points in origination fees and discounts; ARMs include an average of 0.5 points.

Published on May 9, 2013