We’ve all been hearing that mortgage rates are going up these days, particularly from where they were during the pandemic. I recently heard a young TV news reporter speak of “staggering high mortgage interest rates.” When it comes to something as abstract as a mortgage rate, how high is high? How low is low? Even with recent increases, you might be surprised to know that mortgages today are actually right around the historical average.
For this article, we’ll look back at the rise and fall of mortgage rates over the years, discussing the literal highs and lows of our timeline, then a look at where we are currently. Lastly, we’ll talk about refinancing, and how the current mortgage rate doesn’t always tell the whole story. With that in mind, let’s dive in.
WHAT IS THE HISTORICAL AVERAGE?
Freddie Mac first started keeping detailed records of mortgage rates on a weekly basis in 1971. It is from this record that we’re able to speak to specific dates and the rates that were available at that time.
Based on the mortgage data taken from the last fifty-two years, the average mortgage rate on a 30-year fixed rate loan is: 7.74%.
THE LOWEST RATE?
Now that we know the historical average, what week were interest rates at their lowest? A surprise to no one, the lowest rate came during the pandemic. With so many people in the workforce sheltering in place, the economy took a downturn. In an attempt to stimulate the economy, and encourage people to make large purchases that would require a loan, the Fed lowered interest rates markedly.
The 30-year fixed-rate mortgage hit 2.65% during the week of January 7–13, 2021. So, if you locked in your rate just as Mariah Carey’s “All I Want for Christmas Is You” was leaving the #1 spot on the charts that year (it’s true, you can find that here), you likely got the lowest of the low interest rates.
THE HIGHEST RATE?
Conversely, the highest mortgage rate in history arrived in the early ’80s. It should be said that mortgage rates do not directly correlate with the economy of the time, but it is difficult to separate them. Today, we might think of interest rates as being in an inverse relationship to the health of the economy. The lower they are, such as in our example above, the worse off we are economically. A higher interest rate might not always show a strong economy, but does often show an attempt to curb inflation, such as with the current actions of the Fed.
That said, inflation in the 80s skyrocketed across the board in the wake of the second oil crisis of 1979. Mortgage rates followed. The week of October 9-15, 1981, the 30-year interest rate reached 18.63%!
WHERE WE ARE NOW
So, that’s a look at the top highs and lows, but that naturally leads to the question: Where are we now? As of 7/20/23, mortgage rates sit at 6.96%. Obviously that’s a far cry from where we were a little over two years ago, but it is light-years away from the rates in October of 1981. The current rate is far closer to the low end than it is to the high end.
Notably, the current rate is also under the historical average. If the Fed goes ahead with raising rates later this year, as they’ve indicated that they will, we could see rates hovering closer to the historical average.
DATING THE RATE
If there’s one certainty when it comes to mortgage rates, it’s that they will change. Whether up or down, rates are always in motion; they rarely if ever sit still for very long. If you’re thinking of buying a home but are put off by current housing market conditions, don’t let rates stop you from enjoying the benefits of homeownership.
Remember, you always have the option of refinancing once rates are more advantageous to you. Usually, that’s only about 0.5% to a full percentage point below the rate at which your loan closed. Even though that might not seem like a lot at first glance, it can add up to significant savings over the life of a 30-year loan or make your monthly payment easier as your income increases.
This option to refinance has led to the saying, “Date the rate, but marry the home.” In today’s housing market, those are definitely words to live by.
CONCLUSIONS
Owning a home is all about the long game. Building equity takes time, attention and patience. The same is true of getting the best rate you can, either initially or through a refinance later on. If our discussion here has shown us anything, it’s that rates will eventually go down. So, it becomes a matter of owning a home so that you can ride that downward trend when it finally arrives. Renting, on the other hand, means you’re paying someone else’s mortgage while they gain the equity earned simply by the passing of time.
A study of interest rates comes down to this: Don’t let a temporary rate make the choice for you. Today’s interest rates need not keep you from becoming a first-time homeowner or getting the home you really want.