Mortgage Rates Move Down Again

Mortgage rates moved up drastically during the month of December with 30 year rates rising from 4.81 to 5.14. During the first two weeks of January we have seen mortgage rates pull back slightly falling from 5.14 to 5.09 the first week and 5.09 to 5.06 the second week. We also saw the 15 year rate fall from 4.50 to 4.45 this week. The 5 arm dropped drastically this week going from 4.44 to 4.32. The 1 year arm was the only mortgage product to rise moving from 4.31 to 4.39. Being in the odd situation where the 5 year arm is now lower than the 1 year arm the 1 year arm is pretty much pointless as an option. Below are rates from the weeks from Dec 17, 2009 to Jan 14, 2010

Jan 14, 2010
30-fixed 5.06 15-fixed 4.45 5-yr 4.32 1-yr 4.39
Jan 07, 2010
30-fixed 5.09 15-fixed 4.50 5-yr 4.44 1-yr 4.31
Dec 31, 2009
30-fixed 5.14 15-fixed 4.54 5-yr 4.44 1-yr 4.33
Dec 24, 2009
30-fixed 5.05 15-fixed 4.45 5-yr 4.40 1-yr 4.38
Dec 17, 2009
30-fixed 4.94 15-fixed 4.38 5-yr 4.37 1-yr 4.34
Jul 16, 2009
30-fixed 5.14 15-fixed 4.63 5-yr 4.83 1-yr 4.76

Moving beyond mortgage rates let's look at actual mortgage payments. Taking today's rates we used a mortgage calculator to translate them into payments on a 200k loan. We also did the same thing with rates from December 31st (2 weeks ago) and rates from December 3rd 6 weeks ago and the current all time low.

Jan 14
30-year $1080.98
15-year $1524.88
5-year ARM $992.09
1-year ARM $1000.34

Dec 31
30-year $1090.82
15-year $1534.07
5-year ARM $1006.25
1-year ARM $993.26

Dec 03
30-year $1038.47
15-year $1506.58
5-year ARM $975.7
1-year ARM $983.87

So although we have made up some of the ground we have lost in the last two weeks a mortgage payments based on rates from December 3rd is still substantially less than what we are seeing today.

So what do we expect moving forward? Because of the massive rise in mortgage rates in December we are seeing a pullback now. While this might continue in the next week or two the long term direction of mortgage rates is up. The general consensus is that rates are going to move up substantially in the next two years. Although rates have risen we still have to take into account that the rates from December 31st were all time lows and by historical standards rates are still very low and we can't expect them to stay this way forever. As the economy heats up we should start to see rates rise.

Whether rates will rise rapidly or gradually is hard to guess. I have talked to some people that expect them to rise rapidly. I would not count on this. We saw sudden drops down when rates fell so there is no reason to think we won't see this again on the way up.