If you have been hoping interest rates would drop your prayers have been answered. Interest rates plummeted over half a point last week falling from 6.35 to 5.78. The last time mortgage interest rates fell this fast this quickly was the beginning of 1995 when rates fell from 8.32 to 7.57. Rates have basically fallen following the government takeover of Freddie Mac and Fannie Mae. Below are the rates for the major mortgage products for the last few weeks.

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

September 4, 2008

30-yr 6.35 15-yr 5.90 5-yr ARM 5.97 1-yr ARM 5.15

August 28, 2008

30-yr 6.40 15-yr 5.93 5-yr ARM 6.03 1-yr ARM 5.33

August 21, 2008

30-yr 6.47 15-yr 6.00 5-yr ARM 5.99 1-yr ARM 5.29

August 14, 2008

30-yr 6.52 15-yr 6.07 5-yr ARM 6.02 1-yr ARM 5.18

30 Year mortgage rates fell less this week (.15 points) compared to last week (.42 points). 15 year and 5 year arms both fell about .2 points this week. 1 Year arms which was the only major product to not fall last week fell .18 points this week. The other interesting point is that because interest rates were falling before the Fannie Mae and Freddie Mac takeover (based on rumors of the takeover) rates have fallen an incredible amount (.74 points for 30 year rates) over the last month and a half.

Ok so let's see what these drops mean as far as a mortgage payment. Using our free mortgage calculator lets look at a payment based on a 200k loan. We will run the numbers based on today's mortgage rates and rates on September 11, September 4th and July 24th.

September 18th

30-yr $1170.96

15-yr $1618.29

5-yr ARM $1157

1-yr ARM $1077.31

September 11th

30-yr $1190.11

15-yr $1638.41

5-yr ARM $1182.43

1-yr ARM $1099.45

September 4th

30-yr $1244.47

15-yr $1676.92

5-yr ARM $1195.24

1-yr ARM $1092.05

July 24th

30-yr $1281.28

15-yr $1707.22

5-yr ARM $1219.75

1-yr ARM $1134.32

So the obvious thing to see here is that the now lower interest rates have had a large effect on mortgage payments. A mortgage with a 30 year interest rate dropped from 1281.28 to 1170.96 (9.1 percent) in the last month and a half. So that brings up the point that it's probably a good point to start looking at refinancing your mortgage even if you received a mortgage somewhat recently.

So what is in store for the market in the next few weeks? It's hard to tell but the market is very volatile. One day the stock market drops 400 points because Lehman Brothers goes bankrupt. Then the government proposes to takeover the bad mortgage debt and the market rises. Because of this volatility if you are thinking of refinancing I might lock in to an interest rate now because its hard to know what rates are going to be like in a few weeks.