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Comparing Falling US Mortgage Rates and a 200K Loan

In the US mortgage rates fell yet again this week. This marks the 10th week in a row rates have fallen. This is also the 3rd week where the the 30 year mortgage rate (the most popular mortgage product) has hit new 30 year lows. The 30 year rate fell from 5.14 to 5.10. The 5 year arm rose from 5.49 to 5.57. As long as the 5 year rate is higher than the 30 year arm it doesn’t really matter if it rises or falls because no one is using it. The 1 year arm fell from 4.95 to 4.85 and the 15 year arm fell from 4.91 to 4.83. Even though these rates fell more than the 30 year rate these mortgage rates are still pretty pointless. As long as the 30 year rate is this low it really makes more sense to lock into this rate for the long term.

Dec 31, 2008 30-yr 5.10 15-yr 4.83 5-yr ARM 5.57 1-yr ARM 4.85

Dec 24, 2008 30-yr 5.14 15-yr 4.91 5-yr ARM 5.49 1-yr ARM 4.95

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

Dec 11, 2008 30-yr 5.47 15-yr 5.20 5-yr ARM 5.82 1-yr ARM 5.09

Dec 04, 2008 30-yr 5.53 15-yr 5.33 5-yr ARM 5.77 1-yr ARM 5.02

If you take the rates and apply them to a mortgage payment of 200k then you will observe the difference. Comparing rates from last week and from a October 30th when rates first started their historic fall.

Dec 31 30-yr 1085.89 15-yr 1563.93 5-yr ARM 1144.37 1-yr ARM 1055.38

Dec 24 30-yr 1090.82 15-yr 1572.22 5-yr ARM 1134.32 1-yr ARM 1067.53

October 30th 30-yr $1258.87 15-yr $1708.31 5-yr ARM $1245.77 1-yr ARM $1120.56

Obviously the drop per week is less, however, since October 30th we are seeing much lower payments. Here are the savings for the different rates compared to October 30th.

Rate Dollar Amount Saved 30 yr $172.98 15-yr $144.38 5-yr ARM $101.4 1-yr ARM $65.18

Rate Percent Drop in Mortgage Payment 30 yr 13.74% 15-yr 8.45% 5-yr ARM 8.14% 1-yr ARM 5.82%

The most interesting number to me is 13.74% the percent drop for the 30 year rate in the last 2 months. That is pretty significant.

Will Mortgage Rates Continue Dropping

For the foreseeable future we believer so, however, if the economy begins to improve we could see by quarter three this year the rates increasing. The government has a pending plan to offer mortgage rates at 4.5 percent for home buyers. But the way things are headed it would be interesting if mortgage rates fell below 4.5 percent making the governments plan somewhat pointless.

But once the economy recovers most signs point toward massive inflation. Why? The Fed has been pouring billions into the economy to stop the economy from falling apart further. Increasing money supply without successful contractionary measures leads too much money in the system. That means everyone has a bit more money but nobody is better off and prices end up being higher. Historically low interest rates might be followed by historically high interest rates. It remains to be seen how high though.
This article was written with portions from Ki from

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