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Mortgage rates have been rising sharply since last June and we don't expect them to level off anytime soon, especially after a Wednesday report showed consumer prices rising faster than expected.

Inflation is what prompts the Federal Reserve Bank to boost interest rates for everything from mortgages and credit cards to auto and business loans, in an effort to slow spending and hold down prices.

After raising rates 16 times over the past 22 months anyone buying or selling a home, or facing big increases in their adjustable rate mortgage or credit card payments, might have hoped the Fed would ease off.

But Wednesday's news was disheartening and caused a big sell-off in the stock markets. The main culprit was clear: Higher energy prices. And the result is almost as clear: The Fed will continue to raise interest rates for the foreseeable future.

That means home buyers will have to spend less so they can borrow less to keep their monthly payments in check or figure out how to cope with higher payments than they might have expected.

It means home sellers will have to price their homes right because potential buyers will be able to afford, and qualify for, smaller mortgages than they did last summer, or even just a few months ago.

A 30-year fixed-rate loan the most popular way to finance a new house -- averaged 6.67% last week. That's up about a full percentage point from a year ago and 5.375% in June, 2005.

You'll pay more for other fixed-rate loans as well, according to Interest.com's national survey of lenders:

* 15-year loans averaged 6.3%, up from 5.25% one year ago.

* 30-year jumbo loans (for more than $417,000) averaged 6.86%, up from 5.5%.

Introductory rates for adjustable-rate mortgages, or ARMs, are rising even faster. They begin with a fixed, introductory rate for one to seven years, and then the rates are adjusted to reflect whether interest rates are higher or lower than they were when you took out the loan. ARMs with an initial rate fixed for:

* Five years, averaged 6.35%, up from 4.875% one year ago.

* One year, averaged 5.92%, up from 3.5%.

Here's what that means when you reach for your checkbook: If you took out a 30-year, fixed-rate loan for $150,000 at today's rate of 6.67%, your monthly payment of principal and interest only would be right at $965.

A year ago, the payment would have been about $100 less.

How much higher will mortgage rates go?

David Lereah, chief economist for the National Association of Realtors, recently told USAToday that he expects the average rate for a 30-year fixed rate mortgage to reach 7% this summer.

And that was before Tuesday's inflation report.

That Labor Department report showed the Consumer Price Index rose 0.6%, driven by a 3.9% rise in energy costs. Economists cited in most media reports expected the index to rise 0.5%.

The so-called core CPI, which excludes particularly volatile prices for things like gasoline and food, rose 0.3%. That was widely interpreted to reflect high energy costs rippling through the economy and driving up the cost of many goods and services.

For the first four months of 2006, inflation is running at an annual rate of 5.1%, considerably higher than the 3.4% increase for all of 2005.

Source: Interest.com All rights reserved. Copyright Interest.com