Mortgage Rates Drop To New Lows

Mortgage Rates fell again this week. This is the ninth week in a row were rates have fallen. Last week mortgage rates were already at 50 year lows. The 30 Year mortgage rate fell from 5.19 to 5.14. This is not a huge fall. The significant point this week is that they basically stayed down at historically low levels. Here are the lowest points mortgage rates have seen for the last 30 years.

1) December 2008 5.14
2) June 2003 5.23
3) March 2004 5.45
4) May 2003 5.48

Although rates are lower than they were in 2003 and 2004 the mortgage market today is trickier. In 2003 and 2004 virtually anyone could get a decent rate. Today banks are looking closely at credit scores. In addition banks have almost no interest in giving out loans to people wanting to purchase multifamily properties. Below are rates for the last few weeks.

December 24, 2008
30-yr 5.14 15-yr 4.91 5-yr ARM 5.49 1-yr ARM 4.95

December 18, 2008
30-yr 5.19 15-yr 4.92 5-yr ARM 5.60 1-yr ARM 4.94

December 11, 2008
30-yr 5.47 15-yr 5.20 5-yr ARM 5.82 1-yr ARM 5.09

December 4, 2008
30-yr 5.53 15-yr 5.33 5-yr ARM 5.77 1-yr ARM 5.02

November 26, 2008
30-yr 5.97 15-yr 5.74 5-yr ARM 5.86 1-yr ARM 5.18

While the 30 year rate and the 15 year rates have fallen we have not seen nearly as much movement in the 5 and 1 year ARM.

So in addition to mortgage rates it's interesting to look at what the actual payments would be on a loan. Using our free mortgage calculator we ran the numbers on today's rates for a 200k loan. We also ran the numbers for last weeks rates and rates from October 30th. The reason we choose October 30th was because that was when we began the 9 weeks of falling rates.

December 24th
30-yr $1090.82
15-yr $1572.22
5-yr ARM $1134.32
1-yr ARM $1067.53

December 18th
30-yr $1096.98
15-yr $1573.26
5-yr ARM $1148.15
1-yr ARM $1066.32

October 30th
30-yr $1258.87
15-yr $1708.31
5-yr ARM $1245.77
1-yr ARM $1120.56

Compared to last week the payment for a 30 year loan only fell a few dollars going from 1096.98 to 1090.98. On the other hand if we look back to October 30th the payment has fallen from $1258.87 to $1090.82. This is a drop of about 13.4 percent. If we also consider that prices in most areas have fallen over the same period of time this is pretty substantial savings.

There is still no reason to look at Arms. The 5 year ARM still has rates above the 30 year mortgage which makes this product basically pointless. The 1 Year Arm is lower than the 30 Year rate but it's basically pointless for 2 reasons. First the difference is pretty small this week it was only .19 points. Second since 30 year rates are historical lows the small savings hardly seem worth losing the chance to lock in at historical lows.

So what is going to happen with rates moving forward? I think rates are going to hold even or fall a little more over the next month. After that expectations are that rates are going to increase slightly. Once the economy recovers the massive amounts of money the Fed have pushed into the economy should lead to inflation which could push mortgage rates up to 12 or 13 percent. All that is to say over the next few months we might see the lowest rates we are going to see for the next few decades.

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