Historical Mortgage Rates: 1971 To The Present
Kevin Graham5-minute read
September 09, 2022
If you’ve recently entered the housing market, you’ve probably developed a sudden passion for interest rates. This may be particularly true for mortgage loan rates, a topic you’ve probably given little thought to in the past.
Less than a year ago, mortgage rates were at or near historic lows. In 2020, the Federal Reserve lowered rates in response to COVID-19 Now, with prices rising across the economy because of numerous factors, the Fed is hiking its discount rate to cool inflation. This has led to a rise in mortgage rates.
Let’s look at the rise and fall of rates for the 30-year fixed-rate mortgage (FRM) through the decades.
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Historical Mortgage Rates, In A Chart
This is a particularly fascinating time to be an interest-rate enthusiast. The Federal Reserve (the Fed) – the U.S. central bank – is raising rates in response to rising inflation.
The U.S. economy hasn’t seen inflation like we’re currently experiencing since the 1970s. Many experts believe things could get worse because inflation has embedded itself so completely into the economy’s psyche.
These figures come from Freddie Mac, which began tracking 30-year fixed-rate mortgage rates in April 1971:
Rates in 1971 were in the mid-7% range, and they moved up steadily until they were at 9.19% in 1974. They briefly dipped down into the mid- to high-8% range before climbing to 11.20% in 1979. This was during a period of high inflation that hit its peak early in the next decade.
In both the 1970s and 1980s, the United States was pushed into a recession caused by an oil embargo against the country. The Organization of the Petroleum Exporting Countries (OPEC) instituted the embargo. One of the effects of this was hyperinflation, which meant that the price of goods and services rose extremely fast.
To counteract hyperinflation, the Federal Reserve raised short-term interest rates. This made money in savings accounts worth more. On the other hand, all interest rates rose, so the cost of borrowing money increased, too.
Interest rates reached their highest point in modern history in 1981 when the annual average was 16.63%, according to the Freddie Mac data. Fixed rates declined from there, but they finished the decade around 10%. The 1980s were an expensive time to borrow money.
In the 1990s, inflation started to calm down a little bit. The average mortgage rate in 1990 was 10.13%, but it slowly fell, finally dipping below 7% to come in at 6.94% in 1998.
One big reason for the economic growth and declining inflation seen later in the decade was the arrival of the internet in the mainstream consciousness. The increased investment in research and development of new technologies spurred a ton of economic growth.
Mortgage rates steadily declined from 8.05% in 2000 to the high-5% range in 2003. But the housing industry growth fueled by these attractive rates was short-lived.
In 2008, the economy crashed, bringing the housing market with it, and the Great Recession began.
The housing crash continued to worsen as property values declined steeply. This left many homeowners owing more on their homes than the property was worth, a condition known as being underwater on a mortgage. To provide some relief and to stimulate the economy, the Federal Reserve cut interest rates to make borrowing money cheaper.
Short-term rates, or the rates at which financial institutions borrow money, ended up being slashed to the point where they were at or near zero. This made it extremely cheap for banks to borrow funds so they could keep mortgage rates low.
As a result of this change, mortgage rates fell almost a full percentage point, averaging 5.04% in 2009.
Riding the wave of low bank borrowing costs, mortgage rates entered the new decade around 4.69%. They continued to fall steadily and were in the mid-3% range by 2012. In 2013, rates went up to 3.98%. A big reason for this was that the bond market panicked a little bit when the Federal Reserve said it would stop buying as many bonds.
When there are fewer buyers available, the yields on mortgage bonds have to go up to attract purchasers. This also causes mortgage rates to rise. Rates went up to 4.17% in 2014. In 2015, mortgage rates fell back to 3.85% as the market calmed down.
Although they were a little higher to end the year, rates in 2016 averaged 3.65%. With global turmoil, investors flocked to the safety of the U.S. bond market to guarantee the steadiness of their investments.
Rates began to rise after the 2016 presidential election. They reached their peak at the end of 2018/start of 2019. Rates on a 30-year fixed rate mortgage (FRM) ran between 3.95% on the low end and 5.34% on the high.
Rates declined throughout 2019. When January 2020 came around, the average rate for a 30-year fixed was about 3.7%.
Then COVID-19 hit the United States. In response, the Federal Reserve dropped the federal funds rate to between 0% – 0.25%. This caused other short-term and long-term rates to drop.
This move was made to encourage borrowing on home loans, as well as other loans. It also led to a large increase in refinance and mortgage applications. By December, Freddie Mac reported an average mortgage rate for a 30-year FRM sitting at 2.68%.
Mortgage rates then hovered within the same range throughout 2021, but since July 2022, the Fed has been raising its rates to reduce the amount of money in the economy. More rate hikes are on the horizon, so expect mortgage interest rates to further rise this year. That makes now the best time to apply, if you missed 2020’s low.
Historical Mortgage Rates And Refinancing
Mortgage refinancing is the process of swapping your old loan for a new loan. Homeowners can take advantage of lower rates to decrease their monthly payment. This extra money could go toward the principal, paying other debts or building up your savings.
A cash-out refinance is a refinancing option if you have enough equity in your home. With a cash-out refinance, you can tap into home equity you’ve built through repayment of your home loan as well as home value appreciation. You can use that money to pay off other debts or make home renovations.
Use our refinance calculator to see what your new monthly mortgage payment could be.
How Historical Mortgage Rates Affect Home Purchases
Lower mortgage interest rates encourage home buying. Low rates mean less money paid in interest. This translates to a lower payment. Mortgage lenders determine how much you can borrow by comparing your income to your payment. With a lower monthly payment, you may be able to afford more house.
Even if rates slightly rise, an adjustable rate mortgage (ARM) can still offer extremely low mortgage rates. The interest rates on ARMs adjust over a period of time. You may be able to get into a lower-rated ARM now, then change the loan before it adjusts. Talk to your lender about the possibility of converting your ARM to a FRM if rates go lower.
Historical Mortgage Rates FAQs
Still curious about historical interest rates? Here are the answers to some of your burning questions:
What were the lowest mortgage rates in history?
The lowest historical mortgage rates in history for 30-year FRMs were more recent than you might think. December 2020 saw mortgage rates hit 2.68%, according to Freddie Mac, due largely to the effects of COVID-19. The same goes for the lowest average, with an annual rate of 3.11% for 2020.
What were the highest mortgage rates in history?
October 1981 saw 30-year FRM mortgage rates hit their historical peak at 18.45%. That same year saw the highest annual average at 16.63%. The culprit? Record inflation caused by the OPEC embargo.
The Bottom Line: Like All Things Economic, Interest Rates Are Cyclical
By looking at all the historical mortgage rate data available from Freddie Mac, a trend becomes clear. With the exception of a spike in the 1980s, rates were getting lower every decade – until now. The average rate in 1971 was 7.54%. As of 2020, the average rate was 3.11%. Rates that low likely won’t be back for a while.
Now, interest rates sit between 6% and 7% and could potentially rise still further this year.
Ready to start your journey to homeownership? Apply online today and lock in your rate before they rise again.
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