Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers In July, the average 30-year fixed-rate mortgage fell below 3% for the first time in history.1 And while many Americans have rushed to take advantage of this unprecedented opportunity, others question the hype. Are today’s rates truly a bargain?
While average mortgage rates have drifted between 4% and 5% in recent years, they haven’t always been so low. Freddie Mac began tracking 30-year mortgage rates in 1971. At that time, the national average was 7.31%.2 As the rate of inflation started to
rise in the mid-1970s, mortgage rates surged. It’s hard to imagine now, but the average U.S. mortgage rate reached a high of 18.63% in 1981.3
Fortunately for home buyers, inflation normalized by October 1982, which sent mortgage rates on a downward trajectory that would bring them as low as 3.31% in 2012.3 Since 2012, 30-year fixed rates have risen modestly, with the daily average climbing
as high as 4.94% in 2018.4
So what’s causing today’s rates to sink to unprecedented lows? Economic uncertainty.
Mortgage rates generally follow bond yields, because the majority of U.S. mortgages are packaged together and sold as bonds. As the coronavirus pandemic continues to dampen the economy and inject volatility into the stock market, a growing number of investors
are shifting their money into low-risk bonds. Increased demand has driven bond yields—and mortgage rates—down.5
However, according to the National Association of Realtors Chief Economist Lawrence Yun, “the number one driver of low mortgage rates is the accommodating Federal Reserve stance to keep interest rates low and to buy up mortgage-backed securities.” According
to Yun, “we will see mortgage rates stay near this level for the next 18 months because of the significance of the Fed’s stance.”6
HOW DO LOW MORTGAGE RATES BENEFIT CURRENT HOMEOWNERS? Low mortgage rates increase buyer demand, which is good news for sellers. But what if you don’t have any plans to sell your home? Can current homeowners benefit from falling mortgage rates? Yes, they can!
A growing number of homeowners are capitalizing on today’s rock-bottom rates by refinancing their existing mortgages. In fact, refinance applications have surged over the past few months—and for a good reason.7 Reduced interest rates can save homeowners
a bundle on both monthly payments and total payments over the lifetime of a mortgage.
The chart below illustrates the potential savings when you decrease your mortgage rate by just one percentage point. When it comes to refinancing, the bigger the spread, the greater the savings.
Estimated Monthly Payment On a 30-Year Fixed-Rate Mortgage