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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 19, 2013

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Major interest rate shifts occurred this week for adjustable mortgages while fixed rates barely changed.

Reports provided by loans.org found that for the week ending Dec. 19, 2013, the 30-year fixed-rate mortgage barely changed, only increasing one basis point from 4.33 percent to 4.34 percent.

The 15-year FRM meagerly increased from 3.28 percent last week to this week’s average of 3.3 percent.

While the fixed interest rates remained extremely calm this week, there was a huge drop in adjustable rates. The 5/1 adjustable-rate mortgage averaged 2.77 percent this week, down from 3.16 percent last week. This rate dropped a staggering 39 basis points.

Despite the rapid change in the ARM market, a massive drop like this is uncommon. David McKee, vice president of Priority Mortgage Corp said that adjustable-rate mortgages are usually less impacted by economic factors since the home loan interest rates are locked in for less than 30 years like the standard mortgage.

“Mortgage interest rates are influenced by many things including consumer confidence, unemployment, the stock market, government shutdowns and the general direction of the economy,” McKee said.

Peggy Wilson, senior mortgage banker for Huron Valley Financial, believes that the rates will balance out eventually. When she started her career, home loan interest rates were in the teens.

“I’ve seen it all. This is part of a normal cycle,” she said.

One announcement made yesterday will have a large impact on the housing market in the coming years. The Federal Reserve Bank of New York said it will begin reducing its bond purchase program in January. The monthly purchases will drop from $85 billion to $75 billion.

Several experts predict that home loan interest rates will rise in 2015 partly due to the Fed’s decision, but they are unsure how the market will react in early 2014. Although rates will likely rise, the rates were historically and unnaturally low for over the past year.

Similar to Wilson, Ron Nawrocki noticed how different the current rates are in comparison to earlier years. When Nawrocki, a fund manager for B.I. Solutions Corp., took his first mortgage loan in 1977, he was worried about being able to lock down an interest rate of 8.5 percent since rates were increasing.

He said predicting future rates is difficult because the market has historically never seen rates this low, so it is unknown how the market will escape it.

“You just need to find a point in history when owner occupied rates rose from 3.5 percent to 4.5 percent,” Nawrocki said. “When you find such a period, let me know. We’ve never had such low rates.”