Mortgage Rates Nudge Down

So over the last few weeks we have seen a rapid rise in mortgage rates. In the month of December we saw the 30 year rate rise from 4.71 to 5.14. So while the general trend has been rising mortgage rates this week for the first time in four weeks we saw mortgage rates move down a little. The 30 year rate fell from 5.14 to 5.09 and the 15 year rate fell from 4.54 to 4.50. The 5 year arm held steady at 4.44 while the 1 year arm dropped slightly from 4.33 to 4.31. Below are rates from the weeks from Dec 10, 2009 to Jan 07, 2010

Jan 07, 2010
30-fixed 5.09 15-fixed 4.50 5-yr ARM 4.44 1-yr ARM 4.31

Dec 31, 2009
30-fixed 5.14 15-fixed 4.54 5-yr ARM 4.44 1-yr ARM 4.33

Dec 24, 2009
30-fixed 5.05 15-fixed 4.45 5-yr ARM 4.40 1-yr ARM 4.38

Dec 17, 2009
30-fixed 4.94 15-fixed 4.38 5-yr ARM 4.37 1-yr ARM 4.34

Jul 09, 2009
30-fixed 5.20 15-fixed 4.69 5-yr ARM 4.82 1-yr ARM 4.82

So what do we expect moving forward? Plain and simply the expectation is that rates are going to rise. If the economy continues to improve we are at the beginning of a steady rise in mortgage rates. Now I don't expect rates to rise every single week. There should be some bouncing up and down but the general trend should be for rates to move up. If I had to bet I would say that the 30 year rate of 4.71 we saw December 3, 2009 was the low point and we will not see that again this decade. If we do see it again it will be because the economic recovery falters and we experience a double dip recession. But that possibility is beginning to seem more and more remote.

So in addition to rates its helpful to also look at mortgage payments. We took today's rates and translated them into a payment on a 200k house. We did the same thing with rates from Dec 24th and rates from July 9th, 6 months ago.

Jan 07
30-year $1084.67
15-year $1529.98
5-year ARM $1006.25
1-year ARM $990.91

Dec 24
30-year $1079.76
15-year $1524.88
5-year ARM $1001.52
1-year ARM $999.16

Jul 09
30-year $1098.22
15-year $1549.47
5-year ARM $1051.74
1-year ARM $1051.74

Mortgage payments are slightly higher (0.45 percent) than they were six months ago. But they are still lower than what we were seeing six months ago.

So what is our advice for potential mortgage seekers? First off it's a good idea to start looking at one's credit score and talk to multiple lenders early on in the process. The lending industry is still pretty strict and small problems can cause lenders to balk at getting a loan. So it's a good idea to start early so that potential problems on a credit report can be dealt with.

I would also still look at the 30 year mortgage instead of the arms. With rates moving up it makes sense to lock for a longer term mortgage while rates are low.