A Complete Guide To Historical Mortgage Rates
Interest rates have a significant impact on your ability to afford a home. Understanding historical rates can help you come to terms with the idea that rates may increase over time. For example, while you may think today’s mortgage rates are high, they are historically average and far below the record high of more than 18%. Read on to learn about historical mortgage rates, significant moments in mortgage rate history, why rates change, and where rates may go.
Key Takeaways:
- Freddie Mac has tracked U.S. mortgage interest rates since April 1971.
- Mortgage rates change due to a variety of factors, including the Federal Reserve, the housing market, economic growth, inflation and the bond market.
- It’s constructive to look back across historical mortgage rates to learn where rates may go.
Mortgage Rate History Overview
When you want to purchase real estate but need financing, you pursue a mortgage loan. You agree to repay this loan with interest over a set period, typically 15 to 30 years. Mortgage interest rates can be fixed or they can adjust from time to time. Your mortgage rate will determine the cost of borrowing and is expressed as a percentage of the loan amount.
Freddie Mac, a government-sponsored enterprise that buys conforming conventional mortgages from lenders, has tracked average mortgage rates since April 1971. The Freddie Mac Primary Mortgage Market Survey is the most widely reported indicator of interest rates in the residential mortgage market. The St. Louis branch of the Federal Reserve regularly updates a graph that tracks interest rates on 30-year fixed-rate loans.
Below is a graphic showing historical mortgage rates over the past 50 years.
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Why Do Mortgage Interest Rates Change?
Mortgage interest rates are affected by several factors, including:
- The Federal Reserve: The Fed influences mortgage rates by setting the federal funds target rate and buying or selling government securities like Treasury bonds. This indirectly affects the interest rates banks charge for mortgages, with higher rates making borrowing more expensive and lower rates making it cheaper.
- Inflation: Mortgage rates also are affected by inflation. “When the economy is strong and inflation is rising, mortgage rates tend to increase,” says Dennis Shirshikov, an adjunct professor of economics at City University of New York’s Queens College.
- Economic growth: Lenders raise rates to manage demand as businesses and consumers borrow more during growth periods. Additionally, investors may shift resources from bonds to stocks, raising bond yields and mortgage rates. Economic growth also boosts confidence, increasing credit demand and driving up mortgage rates.
- Housing market: The housing market influences mortgage rates through supply and demand, credit availability and refinancing activity.
- Bond market: Fixed-rate mortgage rates are historically linked to the bond market since mortgage lenders and Treasury bonds compete for investors in the secondary market. When the economy is doing well, demand for bonds decreases, making mortgages more desirable and pushing up rates. When the economy struggles, demand increases for bonds and mortgage rates fall.
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Key Moments In Mortgage Interest Rates History
To understand how mortgage rates have changed, let’s review their history by decade.
Mortgage Interest Rates In The 1970s
Mortgage rates averaged around 7.25% in the early 1970s when Freddie Mac began tracking them. “But by the end of that decade, economic factors had caused rates to rise to almost 13%,” says J. Keith Baker, a Certified Financial Planner and professor of mortgage banking at Dallas College in Irving, Texas. These factors included high inflation and economic instability.
Mortgage Interest Rates In The 1980s
Inflation continued to escalate rapidly in the early 1980s, reaching a historic peak of more than 18% in October 1981. This was due to the Federal Reserve’s efforts to combat rapid inflation, says Albert Lord, Founder and CEO of private equity firm Lexerd Capital Management LLC in Summit, New Jersey. The 1980s ended with rates hovering around 9.75%.
Mortgage Interest Rates In The 1990s
In the 1990s, President Bill Clinton presided over the first budget surplus in a generation, thanks to a combination of tax increases and budget cuts. “Due to these twin factors and other economic impacts, mortgage rates fell by the end of the decade to below 7% by 1998,” Baker says. Lord also credits economic growth and low inflation with lowering rates during this decade.
Mortgage Interest Rates In The 2000s
Rates peaked at more than 8% in the early 2000s but slipped to below 5% near the decade’s end. One big reason? The crash of the housing market was caused by the subprime mortgage meltdown. “The financial crisis of 2007 to 2008 led to significant rate cuts,” Lord says.
Mortgage Interest Rates In The 2010s
Rates barely crept above 5% in the 2010s due to aggressive actions by the Fed to support economic recovery following the Great Recession. Mortgage rates dipped to 3.31% in late 2012, ending the decade at under 4%.
Mortgage Interest Rates From 2020 To Today
In the wake of the COVID-19 pandemic, borrowers benefited from the lowest mortgage rates in history: 2.65% in January 2021. However, rates have climbed significantly since then, topping 7% in recent years “due to inflation concerns in the Federal Reserve’s efforts to tighten monetary policy,” says Lord. Currently, mortgage rates are averaging just under 7%.
Mortgage Interest Rates In The Future
Predicting mortgage rates is challenging due to the numerous economic and political events in the U.S. and globally that can abruptly influence interest rates. Still, it’s valuable to study historical data, which can better inform us about future interest rates.
Even among industry experts who make these predictions, there is a range of opinions on where the 30-year fixed interest rate is headed.
“By the end of 2024, I expect the 30-year fixed mortgage rate to average around 7%,” says Drew Heberer, a Realtor at eXp Realty, investor and business intelligence analyst in Davenport, Iowa.
Baker echoes that prediction. “Interest rates on the 30-year fixed-rate mortgage weekly fell below 7% at midyear, but most lenders believe rates will stay around 7% for the balance of 2024 unless there are big changes from the Federal Reserve or shocks in the economy,” he says.
Lord says rates could gradually decline to around 6.4% by the end of the year if inflation eases.
Mortgage Rate History Chart
Curious about what mortgage rates looked like in decades past?
Historical Mortgage Rates By Decade
| Decade | Beginning Mortgage Rate | Ending Mortgage Rate | Average Mortgage Rate |
|---|---|---|---|
| 1970s | 7.33%* | 12.90% | 8.86% |
| 1980s | 12.85% | 9.78% | 12.70% |
| 1990s | 9.83% | 8.06% | 8.19% |
| 2000s | 8.15% | 5.14% | 6.29% |
| 2010s | 5.09% | 3.74% | 4.10% |
| 2020 to present | 3.72% | 6.73% | 5.02% |
**Rate on August 1, 2024
Historical Mortgage Rates By Decade
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Home Buying And Historical Mortgage Rates
Heberer says mortgage rates influence home prices. “Lower rates reduce the cost of borrowing, making homes more affordable and increasing demand. This often leads to higher housing prices with a larger pool of buyers,” he says. “But higher rates increase borrowing costs, reducing affordability and demand and leading to a slowdown in housing price growth or even a decline.”
However, the overall economic context also plays a significant role. “High rates in a strong economy might still see robust housing demand, while low rates in a weak economy might not spur significant buying activity,” says Shirshikov.
Refinancing And Historical Mortgage Rates
Refinancing involves replacing an existing mortgage loan with a new one, usually to benefit from a lower interest rate, decreased monthly payments, or a shortened or lengthened loan term.
“When mortgage rates drop significantly, homeowners are more likely to refinance to lock in lower rates – potentially saving thousands of dollars in interest over the life of the loan,” says Shirshikov.
However, homeowners must weigh the benefits of a refinance against paying closing costs and how long they plan to own their home before deciding if it’s the right move.
FAQ
Here are answers to common questions about historical mortgage rates.
The Bottom Line
Take time to understand how mortgage rates change, why they can change, and how they have fluctuated over the past half-century. Even though you may be frustrated by today’s interest rates, remember they are lower than their all-time highs decades ago and that it was only a few years ago when mortgage rates reached record lows.
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Kevin Graham contributed to the reporting of this article.
