Mortgage Interest Rates: Then, Now and Tomorrow
When it comes to purchasing a home, whether it’s your first or your tenth, few people are in a position to pay cash. Most of us need to rely on a mortgage, and of course securing the best interest rate possible is a goal we all have when we take out any type of loan.
Events That Have Influenced Mortgage Interest Rates
Dating back to about 1910, rates had been fairly consistent at 5%, although mortgages were not very common. That changed with the growth of the 1920s. At the beginning of the Great Depression, mortgage interest rates had risen to around 6%. With the collapse of the economy and the hardships faced by many Americans, mortgage interest rates decreased as the decade progressed and fewer and fewer people could afford to take out a mortgage. Instruments put in place by the federal government helped establish fixed rate mortgages as the new norm.
World War II was the next major influence on mortgage interest rates. With most of the country’s men off to fight the war, there was less demand for consumer goods, including housing, and a shortage of materials to build them. This encouraged lenders to let the mortgage interest rate drop below 5% for the first time. Following the war, returning soldiers and their families were again in the market for new homes. Many took advantage of the VA loans but the demand for mortgages overall escalated and with the rising demand, so did the interest rates for the next few decades.
The Arab oil embargo of 1973 plunged the country into a recession. Rates leapt from around 6% at the beginning of the decade to 8% and 9% halfway through the decade. Inflation was rampant and rates continued to soar, passing 10% by 1980. During the early 1980s, mortgage interest rates reached an all-time high of nearly 17%, a rate which has not been seen since. A change in policies and a slow recovery helped alleviate the mortgage rate climb. As the decade progressed, the country bounced back and the...