Mortgage Interest Rates History (Compared To Now)

By James Young on April 22, 2014
Mortgage Interest Rates History (Compared To Now)

The ups and downs of mortgage interest rates can sometimes seem like a mystery to home owners and those hoping to buy a home. Understanding some of the critical factors impacting rates may not guarantee your ability to accurately forecast rates next week, next month or even next year. But a bit of knowledge will help you to better interpret some of the predictions experts are making and hopefully, use it to your advantage when financing a home.

Mortgage Interest Rates History

As with most trends, it can be useful to see where interest rates have been to get a better idea of where they might be going. In the U.S., a panel made up of representatives from the Federal Reserve Bank and Federal Reserve Board meet eight times a year to set monetary policy, which ultimately drives the mortgage interest rates your lender is able to offer.

Late last year, mortgage interest rates fell to their lowest point since 1971 and then continued to drift downward. The year 1971 was one marked by rising inflation and unemployment, trends that would continue to define the next several years.

Both fixed-rate and adjustable-rate mortgage rates continued to climb, peaking in the early 1980s at heights about four times what is seen today.

While 2013 brought the lowest rates since the early 1970s, other economic conditions from those years were not mirrored so closely. Rather than rising unemployment and surging inflation, 2013 was marked by continued signs of slow, but steady, economic recovery and a housing market that continued to gain a foothold.

With interest rates at all-time lows, most financial forecasters predicted change on the horizon for 2014. While interest rates have risen slightly, they have remained at historic lows and predictions of rising rates have mostly remained unfulfilled.

Against Predictions

There was a good reason so many financial analysts and market watchers were predicting that interest rates would begin to rise this year: the Federal Reserve had announced plans to begin easing back on the policies that were known to keep interest rates low.

But instead, a surprising thing happened. Rather than starting to float upward as the Feds pulled back, interest rates dropped even lower. That’s not to say rates won’t start moving upward soon, but the predictions that they would do so are not months old.

The good news isn’t just for those shopping for a home. Times of low interest rate and low inflation are good over the long-term for both domestic and international economic growth. That doesn’t mean there won’t be some ups and downs in the short run, but over the long haul, low inflation and low interest rates lend strength to financial markets.

Contributors to Current Low Rates

So, what is behind today’s low rates? Experts see a number of factors that are influencing interest rates today:

  • Economic growth. Interest rates remain sensitive to inflation, so low inflation contributes to low interest rates.
  • Strong demand for bonds. Strong stock-market gains have helped institutions, like insurance companies, recover from the economic crisis.
  • The Fed. Despite announcing it would allow small, short-term rises in the interest rate, the Fed is on record as stating it’s long-term plans will be to continue to keep interest rates low.

Taking Advantage of the Current Trend

While most analysts continue to predict that interest rates will rise, the overriding opinion is that interest rates will continue to stay low despite slight upward fluctuations.

Today’s continued low interest rates should serve as a call to action for those planning to enter the market:

  • If you are a current homeowner and haven’t refinanced, now is the time to snag a good rate, while they are still near historic lows.
  • If a move may be on your horizon, make your home purchase while you can still take advantage of low interest rates.
  • If you are a real estate investor, now is the best time to grab some investment property, while prices are still low.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!