A look at mortgage rates over time


In recent years, homebuyers have encountered a challenging scenario, facing significant increases in both mortgage rates and home prices. This combination has created a "double whammy," constraining the affordability for many prospective homeowners. This situation naturally prompts the question: Will mortgage rates increase or decrease? It's a question that has left many of us eagerly anticipating the answer.

Currently, with mortgage rates hovering just below 7%, there hasn't been sufficient movement to motivate either potential buyers or existing homeowners to explore refinancing options. However, a pivotal moment appears on the horizon, with prevailing expert opinions suggesting that the Federal Reserve will initiate rate cuts starting in June, with expectations of three cuts throughout 2024.

While observing broader trends offers valuable insights, it's essential to understand that average mortgage rates serve as a benchmark. Borrowers with strong credit profiles and solid financial standing often secure mortgage rates well below the industry average.

Therefore, instead of solely focusing on average rates, it's advisable to assess your personalized rates to determine what you qualify for.


Mortgage rates chart for 2022 and 2023

In 2020 and 2021, amid the Covid pandemic, mortgage interest rates plummeted to historic lows, thanks to emergency interventions by the Federal Reserve, which drove rates below 3% and maintained them there.

However, the narrative took a turn in 2022. With inflation soaring, mortgage interest rates surged to their highest levels since 2002. According to Freddie Mac's data, the average 30-year rate surged from 3.22% in January to a peak of 7.08% by the end of October.

Despite expectations for a decline in mortgage rates in 2023, this did not materialize. Despite the Federal Reserve's efforts to moderate rate hikes, various global factors and the broader economic environment sustained upward pressure, posing a persistent challenge to the Fed's rate management objectives.

Nevertheless, there's a glimmer of hope on the horizon. With the Federal Reserve opting to maintain the federal funds rate in January and inflation nearing target levels, indications suggest the possibility of three rate cuts in 2024. This would mark the first rate cut since the initial days of the Covid-19 pandemic, although experts generally anticipate this occurring sometime in the spring.


Current mortgage interest rates chart


Historical mortgage rates chart

Presently, rates stand at over twice their record low of 2.65% achieved in January 2021. However, when considering rates over an extended period, they remain in proximity to the historical average.

Freddie Mac, the primary industry authority on mortgage rates, has maintained records since 1971. Across the span from April 1971 to April 2024, 30-year fixed-rate mortgages have averaged 7.74%.

For a comprehensive understanding of today's mortgage rates, it's crucial to contextualize them by examining their historical trajectory.


Historical 30-year mortgage rates chart

To provide insight into today's mortgage interest rates, let's explore the annual fluctuations in average 30-year rates over the past five decades.

Will mortgage rates go back down?

The Federal Reserve has responded to exceptionally high prices and a robust economy with unprecedented rapid rate increases, a trend not witnessed since the early 1980s.

These actions included four significant rate hikes of 75 basis points (0.75%) each, carried out in June, July, September, and November of 2022. While fixed mortgage rates are not directly influenced by the Fed, their measures have unquestionably played a substantial role in driving these rates upward.

In December 2022, the Federal Reserve opted to ease the pace of interest rate hikes, reducing the fed funds rate by a modest 50 basis points (0.50%). This trend of moderation continued into 2023, marked by four adjustments of 25 basis points (0.25%) each in January, March, May, and late July. Consequently, the current federal funds rate now falls within a range of 5.25% to 5.50%.

As we approach the spring home buying season, the 2024 forecast for mortgage rates appears predominantly positive, albeit with expectations of only a slight decrease. The Mortgage Bankers Association (MBA) foresees 30-year mortgage rates ranging between 6.1% and 6.8% in 2024, a projection echoed by NAR, which also anticipates rates to hover within the 6.1% to 6.8% range.

There's widespread speculation regarding the trajectory of rates over the next year or two. Most predictive models suggest that mortgage rates will likely stay above 6% in 2024, with the potential for further decline in 2025. The Federal Reserve's stance on monetary policy will heavily influence the direction of interest rates, with the next two-day FOMC meeting scheduled for April 30 to May 1.

As a borrower, attempting to time the market for rates may not be practical in this environment. Our primary advice is to make your purchase when you're financially prepared and can comfortably afford the home you desire, regardless of prevailing interest rates.

It's important to note that your mortgage rate isn't set in stone. If rates experience a significant drop, homeowners always have the option to refinance later to reduce expenses.

Historic mortgage rates: Important years for rates

According to Freddie Mac's records dating back to 1971, the long-term average for mortgage rates hovers just below 8 percent. However, mortgage rates exhibit significant fluctuations from year to year, with some years experiencing more pronounced shifts than others.

Exploring a few examples can illustrate how rates frequently defy conventional expectations and undergo unexpected fluctuations.

And that's merely the average—certain individuals paid even higher rates. During the week of October 9, 1981, mortgage rates averaged 18.63%, marking the highest weekly rate on record and nearly five times the annual rate observed in 2019.

In 2012, mortgage rates had dipped lower, with one week in November averaging 3.31 percent. However, rates were higher during other periods of the year, resulting in an average of 3.65% for a 30-year mortgage over the entire year.

2019: The surprise mortgage rate drop-off

In 2018, numerous economists forecasted that mortgage rates in 2019 would surpass 5.5 percent. However, this prediction proved incorrect. Instead, rates decreased in 2019. The average mortgage rate declined from 4.54% in 2018 to 3.94% in 2019.

In 2019, the prevailing belief was that mortgage rates had reached their lower limit. However, the subsequent years of 2020 and 2021 once again defied this expectation.


2021: The lowest 30-year mortgage rates ever

Nevertheless, the record-low rates were primarily reliant on accommodating Covid-era policies implemented by the Federal Reserve. These measures were not intended for long-term sustainability. As both the U.S. and global economies continue to rebound from the Covid-induced downturn, it is probable that interest rates will rise.


2022: Mortgage rates spike

Due to significant inflation growth, higher benchmark rates, and a reduction in mortgage stimulus by the Fed, mortgage rates surged in 2022.

According to Freddie Mac’s data, the average 30-year rate skyrocketed from 3.22% in January to a peak of 7.08% by the end of October. This represents an increase of almost 400 basis points (4%) within ten months.

By the year's end, the average mortgage rate climbed from 2.96% in 2021 to 5.34% in 2022. However, if the Fed manages to control inflation or if the U.S. experiences a significant economic downturn, mortgage rates could potentially decrease to some extent.


2023: Navigating Mortgage Rates Amidst Inflationary Pressures

As the Federal Reserve persists in its battle against inflation and inches closer to its 2% target, mortgage rates have indirectly continued to climb higher. Since the Federal Reserve initiated its rate hikes in March 2022, the benchmark interest rate has risen by 5 percentage points.

Freddie Mac’s data indicates that the average 30-year rate reached 6.48% in the initial week of 2023, steadily increasing to reach 7.03% by December.

The question arises: where will mortgage rates ultimately stabilize next year? U.S. Federal Reserve officials anticipate three interest rate cuts in 2024. This action could alleviate significant upward pressure on mortgage rates, potentially resulting in a more pronounced decline. It remains to be seen whether rates will breach the much-anticipated 6% mark in 2024.


2024: A potential turning point ahead

While the previous year witnessed rates surging to unprecedented levels, the forthcoming year is poised to mark another pivotal moment in the mortgage landscape. During the January Federal Reserve meeting, indications surfaced suggesting the potential for three rate cuts in 2024, as opposed to hikes. Most economists widely anticipate a decrease from the peak rates observed last year, albeit a modest one.

Furthermore, 2024 will not only offer fresh opportunities for prospective homebuyers but also for borrowers who secured mortgages in 2023. According to the February 2024 Mortgage Monitor report, nearly half of those who purchased homes last year could benefit from refinancing if rates drop to 6% or lower.


Factors that affect your mortgage interest rate

Monitoring mortgage rates is essential for the typical homebuyer to identify patterns. However, the advantages of today's competitive mortgage rates may not be uniform for every borrower.

Home loans are tailored to individual borrowers. Your credit score, down payment, loan type, term, and amount will influence your mortgage or refinance rate.

Negotiating mortgage rates is also an option. Offering cash upfront for discount points can secure a lower interest rate.


Credit score

A credit score surpassing 720 widens access to low-interest-rate loans, although certain programs like USDA, FHA, and VA loans might extend to borrowers with scores below 600.

If feasible, allocate several months or even a year to enhance your credit score before seeking a loan. This effort could potentially result in saving thousands of dollars over the loan's duration.


Down payment

Increasing your down payment can lower your borrowing rate.

While many mortgages, including FHA loans, necessitate a minimum down payment of 3 or 3.5%, VA and USDA loans offer the option of zero down payment. However, if you can afford to put down 10, 15, or even 20%, you may qualify for a conventional loan with minimal or no private mortgage insurance, significantly reducing your housing expenses.

Loan type

The type of mortgage loan you use will affect your interest rate. However, your loan type hinges on your credit score. So these two factors are very intertwined.

For example, with a credit score of 580, you may qualify only for a government-backed loan such as an FHA mortgage. FHA loans have low interest rates, but come with mortgage insurance no matter how much money you put down.

A credit score of 620 or higher might qualify you for a conventional loan, and — depending on your down payment and other factors — potentially a lower rate.

Adjustable-rate mortgages traditionally offer lower introductory interest rates compared to a 30-year fixed-rate mortgage. However, those rates are subject to change after the initial fixed-rate period. An initially low ARM rate could rise substantially after 5, 7, or 10 years.

Loan term

In this article, we've focused on tracking rates for 30-year fixed-rate mortgages. However, 15-year fixed-rate mortgages typically offer even lower borrowing rates.

Opting for a 15-year mortgage results in higher monthly payments due to the shorter loan term. Nonetheless, over the loan's lifespan, substantial savings can be realized in interest charges.

For instance, if you were to secure a $400,000 home loan with a 30-year fixed rate of 6.5%, your total interest payments over the loan term would amount to approximately $510,381. Conversely, with the same loan amount and a 15-year fixed rate of just 6.0%, the total interest paid would be only $207,624—yielding a significant savings of approximately $302,757 overall.


Loan amount

Interest rates on exceptionally small mortgages—such as a $50,000 home loan—are typically higher than average rates due to their lower profitability for mortgage lenders.

Similarly, rates on jumbo mortgages are usually elevated because lenders face increased risk of loss. However, in 2023, jumbo loan rates have defied expectations, remaining below conforming rates and presenting attractive opportunities for jumbo loan borrowers. Currently, a jumbo mortgage is defined as any loan amount exceeding $766,550 in most areas of the U.S.


Discount points

A discount point can reduce interest rates by approximately 0.25% in exchange for an upfront payment. Each discount point typically costs 1% of the total home loan amount.

For example, on a $400,000 loan, a discount point would require an upfront payment of $4,000. However, the borrower would gradually recover this initial cost over time through the savings gained from a lower interest rate.

Given that interest payments accrue over time, buyers intending to sell the home or refinance within a couple of years may find it more prudent to forgo discount points and opt for a slightly higher interest rate temporarily.

It's worth noting that some rate quotes may factor in the purchase of discount points, so it's essential to verify this before finalizing the loan agreement.


Other mortgage costs to keep in mind

Keep in mind that your mortgage rate isn't the sole factor influencing your mortgage payment.

When calculating your home buying budget, it's essential to consider:

Upon getting pre-approved, you'll obtain a document known as a Loan Estimate, detailing all these figures explicitly for comparison. Utilizing your Loan Estimates enables you to identify the most favorable overall deal for your mortgage, considering not only the best interest rate but also other pertinent factors.

Additionally, employing a mortgage calculator that incorporates taxes, insurance, and HOA dues allows you to estimate your total mortgage payment and determine your home buying budget.


When to lock your mortgage rate

Monitor daily rate fluctuations closely. However, if you receive a favorable mortgage rate quote today, seize the opportunity to secure it.

It's essential to bear in mind that average mortgage rates serve as a general reference point. If you possess excellent credit and robust personal finances, there's a high likelihood that you'll qualify for a lower rate than those reported in the news. Therefore, it's advisable to consult with a lender to ascertain your eligibility and explore available options.


Sources: MortgageReports.Com






Posted by Tanja Hamm on
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