Mortgage Rates Hit Fresh 30 Year Lows (Again)

So rates fell slightly this week. This marks the 10th week in a row rates have fallen. This is also the 3rd week where the the 30 year mortgage rate (the most popular mortgage product) has hit new 30 year lows. The 30 year rate fell from 5.14 to 5.10. The 5 year arm rose from 5.49 to 5.57. As long as the 5 year rate is higher than the 30 year arm it doesnt really matter if it rises or falls because no one is using it. The 1 year arm fell from 4.95 to 4.85 and the 15 year arm fell from 4.91 to 4.83. Even though these rates fell more than the 30 year rate these mortgage rates are still pretty pointless. As long as the 30 year rate is this low it really makes more sense to lock into this rate for the long term.

Dec 31, 2008
30-yr 5.10 15-yr 4.83 5-yr ARM 5.57 1-yr ARM 4.85

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

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

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

Dec 04, 2008
30-yr 5.53 15-yr 5.33 5-yr ARM 5.77 1-yr ARM 5.02

So lets take rates and translate them into a mortgage payment. We ran the current rates on a 200k mortgage. Then we looked at rates from last week and from a October 30th when rates first started their historic fall.

Dec 31
30-yr 1085.89
15-yr 1563.93
5-yr ARM 1144.37
1-yr ARM 1055.38

Dec 24
30-yr 1090.82
15-yr 1572.22
5-yr ARM 1134.32
1-yr ARM 1067.53

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

So the savings from last week are not that impressive. But compared to October 30th we are seeing much lower payments. Here are the savings for the different rates compared to October 30th.

Rate Dollar Amount Saved
30 yr $172.98
15-yr $144.38
5-yr ARM $101.4
1-yr ARM $65.18

Rate Percent Drop in Mortgage Payment
30 yr 13.74%
15-yr 8.45%
5-yr ARM 8.14%
1-yr ARM 5.82%

The most interesting number to me is 13.74% the percent drop for the 30 year rate in the last 2 months. That is pretty significant.

So what is going to happen moving forward. I actually think rates are headed higher over the next two years. They might decrease a little more over the next few months. The government has a pending plan to offer mortgage rates at 4.5 percent for home buyers. But the way things are headed it would be interesting if mortgage rates fell below 4.5 percent making the governments plan somewhat pointless.

But once the economy recovers most signs point toward massive inflation. Why? The Fed has been pouring billions into the economy to stop the economy from falling apart further. This would usually cause inflation except for the fact that the economy is so sluggish. But once the economy recovers the massive amounts of cash the government has pushed into the economy should cause high levels of inflation. This will most likely lead to double digit interest rates. Some thing rates will get up to 15%. So our currently historically low interest rates might be followed by historically high interest rates.

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