In a week of historic changes in the US financial markets mortgage interest rates held pretty much even across the board. With the market making the largest one day drop in decades and also one of the largest one day gains in a long time to mention nothing of the historic 700 billion dollar bailout package we would have expected something to happen with mortgage rates. Instead we saw some of the smallest changes in rates we have seen all year. So what happened? On the one hand I think the markets reacted somewhat positively to the bailout but at the same time the economic outlook has soured. Additionally, the initial positive reaction to the bailout has softened as some have started to question whether the bailout will actually work. So in summary, in a week of unprecedented changes in the mortgage industry mortgage rates didn't move an inch. Below are rates for the main mortgage products for the last few weeks.
October 2, 2008
30-yr 6.10 15-yr 5.78 5-yr ARM 6.00 1-yr ARM 5.12
September 25, 2008
30-yr 6.09 15-yr 5.77 5-yr ARM 6.02 1-yr ARM 5.16
September 18, 2008
30-yr 5.78 15-yr 5.35 5-yr ARM 5.67 1-yr ARM 5.03
September 11, 2008
30-yr 5.93 15-yr 5.54 5-yr ARM 5.87 1-yr ARM 5.21
So let's see what is happening with actual mortgage payments. We are going to look at mortgage payment for a 200k loan based on today's rates, the rates from last week and the rates from a little over a month ago.
5-yr ARM $1199.10
1-yr ARM $1088.35
5-yr ARM $1201.67
1-yr ARM $1093.28
5-yr ARM $1219.75
1-yr ARM $1134.32
So obviously nothing happened in the last week. If you got a 30 year mortgage this week instead of last week you are paying $1.29 more a month. But if we look at the payments one would make on the same loan a little over a month ago we can see we would be making substantially lower payments today. For a 200k loan the payment based on rates from July 24th would be $1281.28 compared to $1211.98 based on today's rates. That's comes out to a savings of $69.3 a month or 5.7%. If you did get a loan a month ago it might be worthwhile to call up your mortgage broker and look into refinancing.
So what are mortgage interest rates going to do over the next month? Obviously the Fed and the US Government are doing everything in their power to lower rates. The question is will they be successful. And that is the critical question. One would have thought the prospect of a 700 billion dollar bailout would have moved the stock market up. If we remember the prospect of a Freddie Mac / Fannie Mae bailout moved brought mortgage interest rates down. But instead since the bailout has been proposed the Dow Jones has fallen over 600 points. Not an encouraging sign. So in summary the bailout could encourage confidence among banks and bring rates down but it's not a guarantee.