Mortgage rates fell for the second week in a row. 30 year rates fell to a 40 year low to start the year dropping down to 4.96 on January 15th. After that rates rose up to 5.25. Now rates have fallen back to almost reach their previous lows. In fact this is the lowest rates have been in 40 year with the exception of the first two weeks of 2009. Below are rates for the last few weeks.
Feb 19, 2009
30-yr 5.04 15-yr 4.68 5-yr ARM 5.04 1-yr ARM 4.80
Feb 12, 2009
30-yr 5.16 15-yr 4.81 5-yr ARM 5.23 1-yr ARM 4.94
Feb 05, 2009
30-yr 5.25 15-yr 4.92 5-yr ARM 5.26 1-yr ARM 4.92
Jan 29, 2009
30-yr 5.10 15-yr 4.80 5-yr ARM 5.27 1-yr ARM 4.90
Jan 22, 2009
30-yr 5.12 15-yr 4.80 5-yr ARM 5.24 1-yr ARM 4.92
The 5 year Arm fell quite a bit this week and is now equal to the 30 year rate (This is the first time since November 20, 2008 that the 5 year arm is not above the 30 year arm). But it's still a pointless rate because why get a 5 year arm when you could get the same rate on a 30 year fixed mortgage. The same can be said of the 1 year arm since it does not offer that much savings over the 30 year rate.
The 15 year rate fell this week and is now also sitting at the lowest point in 40 years with the exception of the first two weeks of 2009. I always like to translate mortgage rates into actual mortgage payments. Below are mortgage payments for a 200k loan based on today's rates and rates from a week and a month ago.
Feb 19
30-yr 1078.53
15-yr 1548.44
5-yr ARM 1078.53
1-yr ARM 1049.33
Feb 12
30-yr 1093.28
15-yr 1561.86
5-yr ARM 1101.93
1-yr ARM 1066.32
Jan 22
30-yr 1088.35
15-yr 1560.82
5-yr ARM 1103.16
1-yr ARM 1063.88
Messing around with our mortgage calculator I found something kind of interesting that illustrates the importance of mortgage rates on payments. If you got a 200k loan with a 30 year mortgage in 1995 the rate would have been around 9 percent and the mortgage payment would have been around $1625. Assuming you never refinanced you would pay off the loan in 2025.
Now if you got a 200k mortgage today you could get a 15 year mortgage with a 4.68 percent rate and pay only $1548.44. In addition, you would actually pay off the mortgage a year earlier in 2024.
So what is my advice in the current market? First I would avoid the 5 and 1 year arm. The rates are relatively high and it makes more sense to lock in with a long term rate when rates are at historic lows. Second I would look into getting a mortgage before spending too much time looking for a house. Basically although rates are low lenders are still pretty picky these days about finances. In addition, if there is anything weird with your credit score finding out early will allow you to have time to fix any outstanding issues.
So as far as the mortgage market what do we expect to happen over the next few weeks? Basically with the stock market hitting 6 year lows recently and hovering near 12 year lows and the bailout getting passed it seems that the market is going to be pretty volatile over the next few weeks. So I could see rates going up or down by possibly as much as half a point. If you have found a house you like it might make sense to lock in now but watch rates and try to relock if they fall significantly over the next week or two.
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