The Fed cut the fed funds rate at the end of October. The rate was dropped from 1.5% to 1%. This is the lowest the rate has been since 2003. Following the cut we saw drops in all the major mortgage products. The 30 year dropped from 6.46 to 6.2. The largest drop was in the 15 year mortgage which fell from 6.19 to 5.88 a drop of .31 points. 5 year arms and 1 years also fell .17 and .13 respectively. Below are mortgage rates for the last several weeks.
November 6, 2008
30-yr 6.20 15-yr 5.88 5-yr ARM 6.19 1-yr ARM 5.25
October 30, 2008
30-yr 6.46 15-yr 6.19 5-yr ARM 6.36 1-yr ARM 5.38
October 23, 2008
30-yr 6.04 15-yr 5.72 5-yr ARM 6.06 1-yr ARM 5.23
October 16, 2008
30-yr 6.46 15-yr 6.14 5-yr ARM 6.14 1-yr ARM 5.16
As we can see from the numbers rates have been moving back and forth over the last few weeks pushed around by different bits of economic news coming out. And this week of course by the recent cuts by the fed. Let's look at what a mortgage would be this week on a 200k loan based on current rates. We also looked at what the mortgage would be for a 200k loan based on last weeks rates.
November 6th
30-yr $1224.92
15-yr $1674.77
5-yr ARM $1223.64
1-yr ARM $1104.40
October 30th
30-yr 1258.87
15-yr 1708.31
5-yr ARM 1245.77
1-yr ARM 1120.56
So first off my advice would be to avoid the 5 year arm. Since the mortgage is so close to what you would be paying on a 30 year fixed mortgage their is almost no reason to consider a 5 year arm. I would also probably avoid a 1 year arm. With mortgage rates acting so wildly its pretty likely rates could be much higher a year from now. If you get a 30 year fixed and rates drop substantially you can also refinance at the new lower rate. If you get a 1 year arm and rates increase there is not much you can do but simply make higher payments.
So what is going to happen moving forward. I have heard some speculation that rates are going to increase this month. I don't know if rates will be higher a month from now but I think rates will continue to see the atypical large weekly fluctuations we have seen the last few weeks.
There has also been some speculation that the fed will raise rates if the market starts to improve. I don't think this is a foregone conclusion. If the economy starts to improve I don't think the government will move quickly to raise rates. Basically the financial crisis has been so severe that if we start to move beyond it politicians will be worried of raising rates too quickly will botch a potential recovery. Or if the recovery fails for other reasons they will be blamed anyway. Therefore I think priority number 1 over the next year will remain the real estate and mortgage markets and that translates to keeping the fed rate low. Of course keeping the fed rate low does not guarantee that mortgage rates will stay low.
About the Author:
Ki is a realtor in Austin Texas. He writes regularly about
mortgage interest rates. His site offers
free mortgage calculator html for webmasters and a widget that shows current
mortgage rates
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Date Published :
Nov 20 2008