Mortgage Rates Start To Fall

The 30 year rate fell from 5.05 to 4.97 this week. Mortgage rates have been yo-yoing the last few weeks. The 30 year rate rose from 4.93 to 5.05 last week. This week the 30 year rate dropped from 5.05 to 4.97. Throughout February rates where remarkably stable due to the lack of news. Now it looks like their are multiple factors (FED increasing the discount rate, housing sales falling) that are affecting mortgage rates but the market seems unsure about what direction rates should move in. The 15 year dropped from 4.40 to 4.33 this week. The 5 year arm dropped from 4.16 to 4.11 (5 year arm). The one year arm jumped drastically from 4.15 to 4.27 (1 year arm). Since the 1 year arm is above the 5 year arm it has once again turned into a pointless product since there is virtually no reason to get a 1 year arm when 5 year arms are lower. Below are rates from the weeks from Feb 04, 2010 to Mar 04, 2010

Mar 04, 2010
30-fixed 4.97 15-fixed 4.33 5 ARM 4.11 1 ARM 4.27

Feb 25, 2010
30-fixed 5.05 15-fixed 4.40 5 ARM 4.16 1 ARM 4.15

Feb 18, 2010
30-fixed 4.93 15-fixed 4.33 5 ARM 4.12 1 ARM 4.23

Feb 11, 2010
30-fixed 4.97 15-fixed 4.34 5 ARM 4.19 1 ARM 4.33

Feb 04, 2010
30-fixed 5.01 15-fixed 4.40 5 ARM 4.27 1 ARM 4.22

Aug 27, 2009
30-fixed 5.14 15-fixed 4.58 5 ARM 4.67 1 ARM 4.69

So rates are one thing but it's also interesting to look at actual mortgage payments. We used our free mortgage calculator and determined mortgage payments from today's mortgage rates. We also did the same thing with rates from February, 18 2010 and rates from August, 27 2009.

Mar 04
30-year $1069.97
15-year $1512.66
5-year ARM $967.55
1-year ARM $986.22

Feb 18
30-year $1065.1
15-year $1512.66
5-year ARM $968.71
1-year ARM $981.53

Aug 27
30-year $1090.82
15-year $1538.17
5-year ARM $1033.67
1-year ARM $1036.07

So payments are slightly up (0.45 percent) from two week ago. But overall payments are still low by historical standards. Payments are 1.91 percent lower than what we were seeing 6 months ago.

So what do we expect to see moving forward? In general the expectation is that rates are going to increase. There is some speculation about how high rates are going to increase. There have been a few people speculating that in the best case scenario rates are going to stay low and then increase slightly to 6 or 6.5 percent. No one (in the news at least) has been expecting rates to decrease. So I would expect rates to be higher in 6 months from now.

Given that what is our advice? I would avoid arms. The risk that rates will be substantially higher in 5 years doesn't seem to justify the slightly lower rates one can get on a 5 year arm unless one is absolutely certain that A) they are going to move in less than 5 years and B) they will be able to relatively quickly sell their house in 5 years.

By: Dane Smith

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Ki writes frequently about mortgage rates. His site covers Austin Tx real estate. It also provides a mortgage rates widget and a mortgage calculator widget.