After 2 Weeks of Large Increase Mortgage Rates Fall Again

So for the previous two weeks we saw sizable gains in mortgage rates. Between May 28th and June 11th 30 year mortgage rates jumped from 4.91 to 5.59. This week we saw rates drop down to 5.38. Although we are still above what we were at two weeks ago it's nice to see mortgage rates moving back down. The other major mortgage products all went down as well. The 15 year dropped from 5.06 to 4.89. The 5 and 1 year arms dropped from 5.17 to 4.97 (5 year arm) and 5.04 to 4.95 (1 year arm). Below are rates for the 4 major mortgage products since May 21st.

Jun 18, 2009
30-yr 5.38 15-yr 4.89 5-yr ARM 4.97 1-yr ARM 4.95

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

May 28, 2009
30-yr 4.91 15-yr 4.53 5-yr ARM 4.82 1-yr ARM 4.69

May 21, 2009
30-yr 4.82 15-yr 4.50 5-yr ARM 4.79 1-yr ARM 4.82

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

So why are mortgage rates dropping? Basically for the last few weeks the economy has been improving and consequently we have seen mortgage rates increasing. In addition to that the government held a few bond auctions that went poorly which also provided upward pressure on mortgage rates. In the last week we have seen some signs the economy might not be recovering as cleanly and quickly as first hoped which has the effect of pushing mortgage rates down.

In addition to mortgage rates it's always nice to look at actual mortgage payments. We took today's rates and used a mortgage calculator and turned them into mortgage payments for a 200k loan. We also did the same thing with rates from June 11th (last week) and rates from December 18th (6 months ago).

Jun 18
30-yr $1120.56
15-yr $1570.15
5-yr ARM $1069.97
1-yr ARM $1067.53

Jun 11
30-yr $1146.89
15-yr $1587.84
5-yr ARM $1094.51
1-yr ARM $1078.53

Dec 18
30-yr $1096.98
15-yr $1573.26
5-yr ARM $1148.15
1-yr ARM $1066.32

As we can see payments based on 30 year mortgage rates the monthly payment on a 200k loans is about $26 dollars lower than they were last week.

So what is our advice? First of all I would still recommend 30 year mortgages. While rates on 5 and 1 year arms are lower I still expect rates to be much higher in 1 year and 5 years from now. So basically it's not worth the risk of having to refinance in a few years. Although rates are higher than they were a few weeks ago they are still near historical lows.

As always it's hard to predict what is going to happen moving forward. I would expect volatility in rates over the next month as we figure out whether the economy is one the road to recovery. Once the economy recovers we expect rates to increase rapidly. The government borrowed 50 cents of every dollar it spent this year. That mountain of debt should lead to higher interest rates.

Ki works as realtor in Austin Texas. His site is filled with information about Austin Texas real estate. It also provides information on mortgage rates along with a free mortgage calculator.