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Mortgage Interest Rates Explained: A Brief History 🏠 Should You Buy a Home?


Let's dive into home mortgage interest rates, as I've been getting a lot of questions about this topic. We hear on the news all about rising rates and wonder how that will affect the housing market.


Well, I wish I could whip out a crystal ball and tell you exactly what will happen with rates and the market, but that's just not possible.


Let's break down data showing you mortgage interest rates from a historical perspective, then show you what your money can buy.


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Obviously, no one wants to pay more for their borrowed money than they have to, but rates are still very low compared to previous rates.


This chart is from Freddie Mac, showing the annual average mortgage rate for fixed-rate loans since 1972. When I pulled this data, November and December 2018 had not been posted yet, so the average that you see is for rates from January through October. It seems almost unbelievable that people were paying over 16 percent for their mortgages, but they were at that time. For an entire decade, rates never averaged below 10 percent.



Even in more recent times (ie: 2000), rates averaged over 8 percent. When we saw the peak of the housing market in the mid-2000s in Tampa, rates weren't at rock bottom. They were in the high 5 to low 6 percent range. Since then, rates have moved significantly lower. In 2016, rates dropped to an average of 3.65 percent.


Yes, it would have been great to lock in a 30-year mortgage at the 2016 rate, but life happens and maybe you weren't ready to buy a house then. Don't beat yourself up about the rates being lower, they had to rise at some point - that's just basic economics. Instead, focus on how rates are still very reasonable compared to previous decades.


Disclaimer: I am a real estate agent, please get in touch with a licensed mortgage broker for specifics on your situation. If you don't have someone already, I can help you connect with a great one.


Let's do a little math to show you the difference in your principal and interest payments as mortgage interest rates rise. Remember that your monthly payment is typically more than just the principal and interest. You may have an escrow account for taxes, insurance, and possibly private mortgage insurance if your down payment is less than 20 percent.


These examples are just looking at the principal and interest portion of the loan, using the Zillow Mortgage Calculator.


EXAMPLE #1

$200,000 LOAN

5% FIXED-RATE

PRINCIPAL + INTEREST =

$1,074 / MONTH


EXAMPLE #2

$200,000 LOAN

5.5% FIXED-RATE

PRINCIPAL + INTEREST =

$1,136 / MONTH (+$62)


EXAMPLE #3

$200,000 LOAN

6% FIXED-RATE

PRINCIPAL + INTEREST =

$1,199 / MONTH (+$125)


See the difference in monthly payments compared to the interest rates? Now let's do a higher loan amount:


EXAMPLE #4

$400,000 LOAN

5% FIXED-RATE

PRINCIPAL + INTEREST =

$2,147 / MONTH


EXAMPLE #5

$400,000 LOAN

5.5% FIXED-RATE

PRINCIPAL + INTEREST =

$2,271 / MONTH (+$124)


EXAMPLE #6

$400,000 LOAN

6% FIXED-RATE

PRINCIPAL + INTEREST =

$2,398 / MONTH (+$251)


Just for fun, let's see what you could afford in 1981 when mortgage interest rates averaged 16.63 percent. For the same monthly payment as a $200,000 loan at 5 percent ($1,074), you could borrow approximately $75,000 at a 16.63 percent rate.


The good thing for people back in the 1980s was that houses cost a lot less than they do now.


So, should you look to buy in the upcoming year even though it looks like interest rates are going to be higher compared to the past few years?


As a real estate agent, my answer is to ask you some follow up questions.


Do you need a new home?

Can you afford it?

Have you been renting for a long time and now want to take advantage of the tax benefits of owning a home? (PS: mortgage interest is tax deductible!)


If the answer to any of those questions is yes, than buy a house.


Don't let the interest rates get in the way of that goal. Historically, rates are still low.


Do your research and partner up with a great real estate agent and mortgage lender - happy house hunting! If you're looking in the Tampa Bay area - give me a call/text as I'd love to help you!

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Melanie is a Tampa Bay area Realtor with Smith & Associates. She loves Tampa Bay area area, houses, and helping clients buy and sell real estate. She can be reached at 813-368-6084 or matkinson@smithandassociates.com


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