Current and Historical Mortgage Interest Rates
Mortgage rates fluctuate often, but they are currently at a historic low compared to previous decades. The chart below, from Bank Rate, an independent comparison service, depicts “3 Month Mortgage Trends.” As of this writing, mortgage interest rates are hovering between 3 and 5 percent.
3 month mortgage trends
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|Mortgage Rates||30-year-fixed||15-year-fixed||5/1 ARM||30-year jumbo|
Historical Mortgage Interest Rates
According to Freddie Mac, mortgage interest rates ranged from 7% in the 1970s up to 12.90% in December of 1979. Things were even worse in the early 1980s, with rates ranging from 12% up to a whopping 18.45% in October of 1981. Interest rates began a gradual descent in the latter part of the 80s, averaging 10.32% in 1989. In the 1990s, rates hovered between 6 and 8%. By 2004, the annual average was 5.84%. The annual average for 2013 was 3.98% – just a little up from 2012’s annual average of 3.66%. As you can see, when compared with historical data for mortgage rates, today’s rates are still at a historic low, but they are rising slowly.
Get the Best Mortgage Rate
The best (lowest) mortgage rates are reserved for those who have superior credit scores and financial references. However, there are steps you can take to secure a lower mortgage rate even if you don’t have a sterling credit rating. Refinancing your home from a higher interest rate mortgage to a lower interest rate can reduce your overall payout by tens of thousands of dollars in most instances. It is easy to see that if you had a 1980s-style mortgage at an interest rate of 18%, you would save thousands by refinancing into a mortgage at current rates less than 4%.
It is unclear how long the rates will remain historically low.
Things That Affect Interest Rates
According to Federal Reserve.gov:
“The prime rate is an interest rate determined by individual banks. It is often used as a reference rate (also called the base rate) for many types of loans, including loans to small businesses and credit card loans. On its H.15 statistical release, “Selected Interest Rates,” the Board reports the prime rate posted by the majority of the largest twenty-five banks. Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate–the rate that banks charge each other for short-term loans–established by the Federal Open Market Committee.”
In addition to the prime rate set by banks, other factors may affect the interest rate you are able to secure with your home mortgage. These include:
- Interest rates will vary according to your loan-to-value ratio. How large your down payment is can make a difference in your interest rate and subsequent monthly payments.
- Interest rates may be a little higher on a refinance – typically as much as one-eighth of a percentage point.
- Credit score – As mentioned above, lower scores tend to have higher rates. When you begin to shop for a mortgage, have one lender pull your credit score and then offer that score to any subsequent lenders you approach. If you have multiple inquires on your credit report, it can lower your score. Because of differences in credit scoring models, it is also best to get your mortgage broker to pull your credit score, as scores given to lenders often differ slightly from those given to consumers. That will limit the times to only one that your score is pulled.
- Points are equal to one percent of your loan amount. If you pay points, you will raise your out-of-pocket expenses now but keep your interest rate low for the life of the loan.
- FHA loans are mortgages insured by the Federal Housing Administration (FHA). Because they are insured by this government agency, they are less risky for lenders and have lower interest rates than conventional mortgages.
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