A Mortgage Rates History

A Mortgage Rates History

Mortgage interest rates fluctuate frequently. In January 2022, the typical 30-year fixed rate was 3.45 percent. The average 30-year fixed rate of today is still significantly lower than the 4.9 percent 20-year average. Additionally, rates are still substantially lower today than they were in April 1971, when Freddie Mac first started keeping track of 30-year fixed mortgage rates.

Rates of inflation and mortgages

When compared to current rates, the average mortgage rate in 1971 was 7.31 percent, which may seem exorbitant. But from in 1974, the average annual rate of inflation started to rise, reaching a peak of 9.5 percent in 1981. Mortgage rate volatility was caused by lenders raising their rates to keep up with the rising cost of living. The 30-year mortgage rate reached an all-time high of 18.63 percent in October 1981 as a result of corresponding increases in the federal funds rate to fight inflation.

Early 1980s efforts to control inflation were successful; by October 1982, inflation had returned to historically typical levels. Home mortgage rates continued to be in the single digits after that before eventually falling to 3.31 percent for a week in 2012. The typical mortgage rate was 4.85 percent by 2018, and many experts anticipated it to surpass 5.5 percent. However, rates drastically decreased in 2020 as a result of the coronavirus pandemic. The 30-year fixed rate set an all-time low of 2.65 percent for 30-year fixed mortgages in January 2021 after dropping below 3 percent for the first time ever in July 2020.

Fannie Mae and the New Deal

The National Bureau of Economic Research estimates that the history of mortgage rates spans around 100 years. Little-term balloon mortgages with periods as short as three years were frequently given by commercial banks and life insurance firms prior to the 1930s. These debts were frequently refinanced but infrequently paid off. Home prices fell as The Great Depression got underway, and there were a ton of foreclosures. A component of the "New Deal" was the establishment of the Homeowners Loan Corporation (HOLC). Its goal was to refinance balloon loans into long-term, fully amortized loans with maturities as long as 25 years, in addition to making properties more affordable. To increase credit availability and modernize lending requirements, Fannie Mae was founded in 1938. Rates didn't start to rise until the end of World War II.

housing savings

The 1981 monthly payment for a $100,000 mortgage was $1558.58, which can be used to illustrate the financial impact that mortgage rates have. In contrast, a $100,000 mortgage would need a $423 monthly payment at the current interest rate of 3.02 percent. For the same loan amount, that translates to a difference of more than $1000 per month and $13,000 per year. Rates play a significant role when applying for a mortgage or refinancing, which is understandable. Purchasing a property may be more affordable when interest rates on mortgages are lower. A smaller down payment can make it possible to buy a home that costs more. Additionally, refinancing frequently turns into a wise choice when mortgage rates are low because it replaces your present loan with a new one at a reduced rate.

Are mortgage rates going up?

It can be difficult to forecast future mortgage rates. As we've seen, there are decades in which the 30-year fixed rate is quite constant, and there are other decades in which it has been rising annually. In order to potentially save thousands of dollars yearly in the future, many homeowners are locking in today's rate, which did just reach a one-year high.

This article was contributed on Jul 30 2022