Historic Mortgage Rates
Whether you are a current homeowner or thinking about buying a new home, your mind is definitely on mortgage rates. More specifically, what have mortgage rates and payments been historically? To answer the burning question:
Is this the right time to buy or refinance a home?
That’s why we sent out our Morning Mortgage Notes researchers to find and compile this data so you can make a more informed mortgage decision.
We’re going to tackle this question in two ways:
- What has the historic trend of mortgage rates been?
- What has the historic trend of average mortgage payment been?
With these two pieces of data and a general idea of how long you intend to be in your house you can get a really good idea if mortgage rates are ideal for locking in the low refinance opportunity or affording that once in a lifetime home bargain. As you can see I am giving away a little bit of the bottom line with these mortgage rate and payment historical statistics.
A quick scan down the page will spoil the poorly kept secret that we are at historical lows for mortgage rates and payments–like since the beginning of recorded mortgage data time historical. But, this kind of data is useful all the same because it gives you confidence and facts to take into your refinancing or home buying mortgage process.
10 Year (2000-2010) Historical Mortgage Rate Trend
Let’s start with a shorter time horizon–10 years of mortgage rate data. I start our analysis with this time period for two reasons.
First, considering the state of the housing market this is the likely time horizon for a homeowner or new home buyer to remain in their home and there mortgage. It’s worth noting that this expectation is notably lengthened since the refinance boom of 2004-2007.
Second, this historic period gives us a fair representation of what a full mortgage rate cycle might look like. As you can see in the graph below rates trend from a high in 2000, bottom out between 2003-2005, and begin to rise in 2006-2008 before shifting down again in 2009 to present.
The obvious conclusion in this graph is that 2010 is a historic bottoming out of mortgage rates and considering the extended period of very low rates you can assume a steeper climb-out (i.e., rapidly rising mortgage rates) to more closely match the rapid rate declines from 2000-2003.
20 Year (1990-2010) Historical Mortgage Rate Trend
Now as we move into a longer series of mortgage rate data it’s obvious that are basic premise is still intact–mortgage rates are at historic lows.
However, there are a few additional interesting observations to be made on this rates graph.
First, current mortgage rates are well below any “average” mortgage rate level. This means that we are very possibly at a historical floor and any rise in rates is very unlikely to drop back down to these levels.
Second, if this period is to represent a longer-term mortgage rate cycle you can easily see the future–a steep rise in interest rates. And if these rates don’t represent the bottom, we would again be headed into another unprecedented economic scenario.
The obvious conclusion to make from this chart is that we are at a historical mortgage rate low. It is also logical to conclude that given the increasingly positive outlooks on the economy, mortgage rates are poised to rise in the near future.
10 Year (2000-2010) Historical Mortgage Payment Trend
As you might expect mortgage payments, in the following two graphs, track similar paths. Probably the most important conclusion to make with this data set is to feel the same sense of urgency in considering your home refinance or new home purchase–average mortgage payments can shift hundreds of dollars in a matter of months.
Unfortunately, the real danger in rising mortgage payment is left unaddressed by this representation of mortgage payments. The real rise in mortgage payments in the current and future mortgage market is the cost of mortgage insurance.
Over the past several years private mortgage insurance (PMI) was taken out of the mortgage payment equation by piggy-back home equity loans and lines. This process reduce the total mortgage payment by allowing the borrower to still put less than a 20 percent downpayment and avoid mortgage insurance fees. This is no longer the case. Nearly all mortgage loans financed at greater than 80 percent of the value of the home will need mortgage insurance.
In addition, because of the large losses incurred by these mortgage insurers during the collapse of home values their fees are on the rise. Even government mortgage options, like FHA loans, are raising their rates for mortgage insurance.
20 Year (1990-2010) Historical Mortgage Payment Trend
In this mortgage payment graph I again lengthened the historical time period to give you a true realization of the unprecedented market we are experiencing. Not only does the graph below show average mortgage payments at the lowest point in 20 years, these rates are approximately $800 lower per month.
Let’s think about that spread in average mortgage payments. In just one year that is a savings of $9600–without even considering interest savings. You certainly don’t want to be paying at the high point of this trend.
Even though this is a long-term graph take a look recent average monthly mortgage payment history–specifically 2003-present. You are still talking about a difference of nearly $300 in monthly payments. And looking even closer you can see that the changes are volatile, moving $100-200 within a period of months.
Historical Mortgage Payment Trend (1974-2010)
At this point we have really squeezed out all of the good learnings on historical mortgage rates and average monthly payments from this data. However, I decided to stretch the timeline all the way out to the maximum of the data sets. This is where the real mortgage opportunity reveals itself in the current market.
It’s obvious that we are at the historical low point for mortgage rates and payments. It is also clear that the 1980s showed us a dramatic and unique high water mark for mortgage rates and payments. However, the big takeaway should be in where the equilibrium (or average) point seems to be for historical mortgage rates and average mortgage payments. If you review the graphs those points of equilibrium in a normal mortgage market are a whopping 8-9 percent mortgage rate and $1550-1650 average mortgage payment–contrast that with 4.5 percent and near $1000.
The conclusion is really quite simple:
Mortgage rates and mortgage payments are at not only historical low points, but at unprecedented low levels. The good news is that you are considering your home refinance or home purchase in this unique mortgage market. The bad news is you could miss it and even avoiding a return to the extreme mortgage rate and payment environments of the 1980s you are looking at mortgage rates rising 2-3 percent and mortgage payments rising $300-600 in the near future.
Don’t you think it is time to review your mortgage options?
About Bill Rice