Mortgage Rates Have Gone Haywire

This marks the third week in a row that mortgage rates have moved in one direction or another by more than .4 points. This is highly unusual. For some perspective for the 12 weeks from March 20th to June 5 mortgage rates held steady between 5.85 and 6.09. At this point mortgage rates are highly highly volatile. Here are mortgage interest rates for the last 4 weeks.

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

October 9, 2008
30-yr 5.94 15-yr 5.63 5-yr ARM 5.90 1-yr ARM 5.15

October 2, 2008
30-yr 6.10 15-yr 5.78 5-yr ARM 6.00 1-yr ARM 5.12

30 Year rates have been a little more volatile than the 15 year fixed and 5 year arm products. The one mortgage product that stands out is the 1 Year ARM. It has for the most part been steadily rising over the last few weeks.

So what is going on with mortgage rates? Basically there are a number of strong forces pushing around mortgage rates like a wild hurricane. Over the last few weeks we have seen similar erratic swings with the stock market with both historic rises and drops happening several times in the last week. Add to the uncertainty in the economy with massive government bailout programs (the Fannie Mae takeover and the 700 billion bailout) we can begin to see that the erratic movement in mortgage rates is simply a reflection of a highly erratic time period in the general economy.

Ok let's look at what your payment would be on a 200k mortgage. Using our mortgage calculator we ran the numbers based on today's mortgage rates. We also ran the numbers based on mortgage rates from last week.

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

October 23rd
30-yr 1204.24
15-yr 1657.60
5-yr ARM 1206.82
1-yr ARM 1101.93

It's hard to tell what rates are going to do moving forward. But it looks like rates will continue to remain volatile. What we are seeing is basically a tug of war between the government and the economy. The government is doing whatever it can to push down rates through takeovers, bailouts and lowering the fed rate. Negative factors that come up in the economy tend to push rates up because it causes banks to not want to lend out money. I think we will continue to see this tug of war for the next few weeks. Add a presidential election throw in for good measure and I expect to see mortgage rate volatility to continue. That said overall I expect mortgage rates to go down over the next month. The government shows no signs of letting up and I think they will win the tug of war in the long term.

What recommendations do I have for people looking for a loan? I hate recommending arms. If people are looking at the buying for a long term (single family home owners) I would advise to avoid arms. If investors are planning on being in a property for a short period of time and have the cash reserves to deal with random changes in mortgage payments the 1 year is attractive because the difference between 30 year and 1 year arms is greater than what we typically see.

Ki lives in Austin are writes about trends with mortgage rates. His site provides a free mortgage calculator and a graph of historical mortgage interest rates.