Mortgage interest rates are the percentage of your loan amount that you will pay in interest each year. In the U.S., mortgage rates are steadily rising. The current fixed rate mortgage average in the U.S. is 5.54%. Generally, higher mortgage rates make it more expensive for buyers to purchase a home, which can cool down a housing market through fewer sales.

Related Slideshow: States where mortgage rates are rising most

Historical Mortgage Rates in the United States

The history of mortgages in the U.S. can be traced back to the 1970s, fluctuating dramatically as the mortgage system evolved and became more sophisticated. In 2022 alone, the year kicked off with a 3.22% average for a 30-year fixed rate mortgage, hitting a peak of 5.81% in June. A high mortgage rate means potential home buyers must budget for a higher monthly mortgage payment.

Future mortgage rates are also difficult to predict as the economic climate, inflation and interest rates can all be factors. This means homebuyers may have difficulty figuring out when the best time to buy a home is.

A 30-year fixed rate mortgage is a common type of rate in the U.S. It offers borrowers a stable monthly payment for the life of the loan and is typically used to finance primary homes.

The 30-year fixed rate mortgage began to rise in popularity in the 1970s and reached its peak in the early 1980s. The 30-year fixed rate mortgage has fluctuated since then, but over the past few years, it has mainly stayed stable. Several factors can influence the 30-year fixed rate mortgage, including inflation, the Federal Reserve’s monetary policy and overall economic conditions.

Similar to the 30-year option, a 15-year fixed mortgage is a type of home loan that offers a shorter term. It typically provides a lower interest rate than 30-year fixed mortgages while still giving borrowers the security of a fixed interest rate.

Several historical events and policy changes have influenced the trend of 15-year fixed rate mortgages. These include the Great Depression, the influx of baby boomers into the housing market and the recent subprime mortgage crisis. Despite these influences, the 15-year fixed rate mortgage has remained relatively stable, fluctuating between a low of 2.56% to a high of 4.52% after 2010.

Freddie Mac’s Primary Mortgage Market Survey is MoneyGeek’s primary data source. This survey has been conducted every month since July 1971 to provide a snapshot of mortgage rates available to consumers. Their latest report says the housing market remains sluggish due to a second weekly increase in mortgage rates.

Consumer concerns about rising rates, inflation and a potential recession manifest in softening demand. These factors will likely cause a noticeable slowdown in the growth of home prices. This report is used by mortgage lenders, home builders, financial analysts and others in the industry to understand market trends better and make sound decisions.

1970s

High inflation and volatile mortgage rates characterized the 1970s. In 1971, rates for 30-year fixed-rate mortgages varied between 7.29% and 7.73%; by the end of 1978, however, they had risen to 10.38%. Inflation continued to spike throughout the 1980s, so lenders increased rates to keep up.

The 1970s indeed saw significant inflation and fluctuating mortgage interest rates. This was partly due to the high inflation rates of the time, which peaked at 11.2% in 1974, as lenders increased their rates to keep up. Unfortunately, this led to even more volatility for borrowers, with rates for 30-year mortgages rising as high as 16.35% by the 1980s.

The end of the Vietnam War, the Great Inflation and the Energy Crisis of the 1970s are a few notable events that occurred during this time. Despite these challenges, however, many Americans were still able to purchase homes and take out mortgages during this time.

1980s

Mortgage rates and rising inflation dominated the 1980s, with 30-year fixed mortgages peaking at 18.63% and inflation reaching 11.6% in 1981. Throughout the 1980s, the lowest 30-year average for fixed mortgages was 9.03%, while inflation only hit a low of 3.8%.

The Federal Reserve exercised greater control over reserve and money growth to combat inflation, implementing the Monetary Control Act in 1980. While the strategy worked, it also increased mortgage interest rates, which remained high throughout most of the 1980s. Despite this, by 1982, the country’s inflation levels had normalized, and the Federal Reserve’s strategy was successful. However, because mortgage rates remained high, many people could not buy homes during this time.

1990s

Mortgage rates finally fell below 10% in the early 1990s, giving homeowners with mortgages from the 1980s a chance to refinance and save money. While rates peaked at 10.67% in early 1990, they eventually started to fall in the following years. This low-rate environment spurred a refinancing boom, allowing many homeowners to refinance multiple times.

Thanks to inflation being kept under control, the low-rate environment of the 1990s allowed many homeowners to refinance their mortgages multiple times, with rates briefly dropping below 7%. This created a refinancing boom, as homeowners could reduce their monthly payments by refinancing from higher interest rates to lower ones.

The low mortgage rates of the 1990s led to a housing boom as well, as more and more people could afford to purchase a home. This saved homeowners hundreds of dollars every month, which they could use for other purposes such as investing or saving for retirement.

2000s

Mortgage rates generally fell in the 2000s. By 2003, 30-year fixed rate mortgages had settled between 5% and 6% and remained for the rest of the decade. In the latter 2000s, the highest rate was in mid-2006 when rates jumped to 6.79%.

The mortgage business changed in the 2000s. The housing market experienced record lows compared to previous decades, encouraging the rapid growth of the housing market. It even prompted the rise of the subprime market, which led to more borrowing and risk-taking. This eventually led to the housing crisis and the Great Financial Crisis of 2008.

Mortgage rates fell to previously unheard-of lows as investors sought safe havens for their funds in the wake of the crisis. The housing crisis led to many people losing their homes and made it difficult to get mortgages, which caused the rate to increase.

2010s

In the 2010s, 30-year fixed rate mortgages hit a record low of 3.32% and a high of 5.21%. Within this decade, the housing market recovered slowly from the Great Financial Crisis of 2008.

The decrease in mortgage rates was primarily due to the housing market recovering from the Great Recession in 2008. At the time, the crisis caused many homeowners to default on their loans, resulting in banks being left with many foreclosed homes. Banks began to charge higher interest rates on new loans to compensate for their losses, making it harder for people to obtain mortgages and decreasing the demand for housing. With fewer people looking to buy homes, prices began to fall, leading to even more foreclosures.

2020s

Mortgage rates steadily dropped at the beginning of the 2020s, reaching a historic low of 2.65% at the beginning of 2021. However, 2022 signaled the beginning of a new rise in mortgage rates. Rates reached a peak of 5.81% in June, likely due to the COVID-19 pandemic, as businesses and homebuyers opted to play it safe with their finances.

There were many ups and downs throughout the first two years of the 2020s. For instance, the 30-year mortgage rate hit a new low in January 2021 but spiked just over a year later.

The fluctuation and rise in mortgage rates were most likely brought on by the COVID-19 pandemic, which affected Americans and individuals all over the globe in early 2020. However, despite the Federal Reserve increasing interest rates to battle inflation and stabilize the economy, it did little to ease the mortgage market. Therefore, while rates reached historic lows, many Americans could not take advantage of these low rates due to high housing prices and other economic factors.

Mortgage Rates and Median Sales Prices

The graph below shows the relationship between historical mortgage interest rates and median sale prices. This information could be valuable to potential home buyers deciding whether to buy a home at a particular time.

The graph compares historical mortgage interest rates to median sale prices of homes over time. Beginning in the 1970s, mortgage rates slowly fluctuated within the 7% range, peaking at 11.58% in 1985 and again in 1987. On the other hand, home prices never fell below $25,000 after 1971.

Generally, rising home prices make it more difficult for individuals to buy and afford a home — even as mortgage prices fall. Additionally, it makes it more challenging to save for a down payment or be approved for a loan as the ordinary person’s wages have not kept up with the property prices.

This is particularly valid for first-time homeowners looking to get into the market.

If this trend continues, it could eventually price many people out of the housing market altogether. This would have severe implications for the economy as a whole, as housing is one of the main drivers of growth. Therefore, monitoring this pattern in the coming years is crucial to see if it changes.

Factors Affecting Mortgage Rates

Potential homeowners are paying close attention because mortgage rates are at an all-time low. But what factors influence mortgage rates?

Several factors can affect mortgage rates, including interest rates, economic growth, inflation, the Federal Reserve and unemployment. These factors can work together to cause rates to go up or down, depending on current conditions. Mortgage rates, for instance, will probably be higher than they would be if the economy were struggling and unemployment was high. Thus, borrowers should consider these factors when shopping for a home loan to get the best rate possible.

BEAT THE MARKET AND FIND THE BEST RATES FOR YOU

Finding the best interest rate could seem unattainable with so many options available. How can you choose which is best for you? MoneyGeek’s calculator will help you compare rates and find the best deal for your needs.

History of Mortgage Rates FAQ

Mortgage rates are important for people looking to buy a home. Here are some of the most frequently asked questions and answers about mortgage rates.

How are mortgage rates determined? 

Mortgage rates are typically based on interest rates, housing prices and the borrower’s credit score, but many other factors can also affect mortgage rates. These include the type of loan, the lender, the loan’s terms and the borrower’s equity in the home.

How do housing prices affect mortgage rates? 

Housing prices can also affect mortgage rates. When home prices rise, it can lead to higher mortgage rates because lenders are more hesitant to give loans. On the other hand, when home prices fall, it can lead to lower mortgage rates as lenders are more willing to provide loans.

How do credit scores affect mortgage rates?

Credit scores are one of the most important factors that lenders look at when determining mortgage rates. A higher credit score indicates to the lender that the borrower is lower risk and is more likely to repay the loan. As a result, mortgage rates are often lower for individuals with higher credit scores.

How can I find the most affordable mortgage rate?

There is no one-size-fits-all answer to this question. The best way to get the best mortgage rate is to shop around and compare rates from multiple lenders. Before applying for a loan, you may also check your credit score to ensure it is in good standing.

 Should I lock in my mortgage rate? 

It depends. If rates are rising, it might be a good idea to lock in your rate. However, if rates are falling, you might want to wait to see if you can get a lower rate. In the end, whatever suits you is what matters.

Expert Insights on the History of Mortgage Rates

Matt Gray, CFP® 

Founder of AnthroFiWealth Group

How can future home buyers determine the best time to purchase a home?

Regardless of the finances, homebuyers should look to buy a home when they are ready, and it fits their lives. No one should move into or out of home ownership simply because of interest rates. That said, I argue that buying a home is best when rates are high because that’s when prices are low. Then as interest rates fluctuate over time, there will be a likelier chance of being able to refinance. To me, the best time to buy a home is when purchase prices are low, full stop.

What are the biggest contributors to cooling mortgage rates based on past historical data?

There are numerous variables that impact mortgage rates with Federal Reserve policy being the one most spoken of even though mortgage rates are not tied to Federal Reserve activity. When the economy is doing poorly, mortgage rates tend to fall because of supply and demand issues but also because the Federal Reserve typically lowers rates in those periods. Lastly, inflation plays a large role in mortgage rates. Lenders can still make a profit on low interest loans as long as inflation is also low. In short, Federal Reserve policy, poor economic conditions and low inflation rates all contribute to lower mortgage rates.

From a home buyer standpoint, can fixed mortgages still adjust after locking in? If so, under what conditions?

The lender cannot change rates on a fixed-rate loan once it has been set and both parties agree. Lenders usually have higher rates on fixed loans to account for the risk that rates may go up in the future. Even though the lender can’t make the change, sometimes the borrower can by electing to refinance their loan.

If a home buyer borrowed money at 6.5% and rates were at 5% two years later, they might tell the bank they want a new loan at 5%. There are usually some fees and more signatures involved, but it has the potential to pay for itself if the mortgage payments drop enough in doing so.

Eyal Pasternak 

Founder of Liberty House Buying Group

How can future home buyers determine the best time to purchase a home?

If you’re not well versed in financial models or programming, you should try transposing whatever skills you have to predict home prices. This includes looking back at data from the last 30 years or so to find a pattern of how the market works. Other than that, consulting a professional might be helpful as many companies, including my own, try to offer ways to increase financial literacy for customers and clientele.

Other than that, figuring out what time is best for you personally depends on your savings, the type of property you are looking for, and your credit score. First, you should opt to buy a house when your credit score is good so that you can obtain a mortgage. Other than that, ensure that even after depositing a downpayment on a house you have enough savings left for your emergency funds and other necessities.

What are the biggest contributors to cooling mortgage rates based on past historical data?

Typically, a cooling mortgage rate is preceded by a spike. This is because when mortgage rates increase, the demand for housing falls since buying a house becomes unaffordable for most people. Similarly, the period before mortgage rates fall is one where inflation is peaking, not just in terms of house prices but also in terms of inventory costs, such as wages for laborers and brick and mortar prices. When Federal Reserve policies can curtail inflation, mortgage rates cool down simultaneously, so government policy has always impacted rates.

From a home buyer standpoint, can fixed mortgages still adjust after locking in? If so, under what conditions?

A fixed mortgage rate is unlikely to change after locking in. However, you might face problems switching to another lender after the fixed period is over since banks try to discourage this by adding a tie-in clause to agreements. If you end up going with the same lender, their standard variable rate is likely much higher than the fixed rate, so it’s best to look for other lenders before your contract ends.

Cliff Auerswald 

President of All Reverse Mortgage, Inc.

How can future home buyers determine the best time to purchase a home?

Your current financial situation. You’ll need a good idea of your budget and what you can afford before you start shopping for a home. Do you have a steady income, and are you in good shape financially? If not, you may want to wait until your financial situation improves before buying a home. Also, other costs are associated with purchasing a home, like closing costs, moving expenses and furniture. You’ll also need to factor in the ongoing costs of owning a home, such as property taxes, insurance and maintenance.

The current housing market conditions. Are prices rising or falling? Is it a buyer’s market or a seller’s market? 

Knowing this will help you determine whether now is a good time to buy or if you should wait for a better time.

Your long-term goals. What are your plans for the future? If you’re staying in your home for a long time, it may not matter as much whether prices are rising or falling. But if you’re selling soon, keep an eye on market conditions so you can time your purchase accordingly.

Your personal circumstances. There are various other factors to consider when deciding whether now is the best time to buy a home. For example, are you getting married or starting a family? Do you need to move for work? These are just some things you’ll need to consider when making your decision.

What are the biggest contributors to cooling mortgage rates based on past historical data?

The two biggest contributors to cooling mortgage rates are the Federal Reserve’s monetary policy and the overall state of the economy. Once the Federal Reserve raises interest rates, it becomes more expensive for banks to borrow money. This increased cost is passed on to consumers through higher mortgage rates. Similarly, consumer demand for loans increases when the economy is doing well. This means lenders will also have to raise rates to keep up with demand.

From a home buyer standpoint, can fixed mortgages still adjust after locking in? If so, under what conditions?

A fixed mortgage rate, mostly amortized loans, will not go up or down regardless of future market conditions. This can offer peace of mind to borrowers who are worried about interest rates increasing in the future. However, note that fixed mortgage rates are usually higher than adjustable rates. So if you’re comfortable with the risk of your rate changing in the future, the latter may save you money in the long run.

Some adjustable-rate mortgages have a “rate lock” feature, which allows borrowers to lock in a fixed rate for 30, 60 or 90 days. After that, the rate can adjust according to the market conditions. If rates swell during that time, you’ll still get the locked-in rate. If rates drop, you may be able to renegotiate with your lender for a lower rate. However, fees may be associated with this, so it’s best to speak with your lender about their policies.

This article originally appeared on MoneyGeek.com and was syndicated by MediaFeed.org.

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