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How low can we go? 30-year mortgage rate charts tell the story

Peter Miller
The Mortgage Reports contributor

30-year mortgage rates chart

If you look at a 30-year mortgage rate chart, there’s a trend you can’t miss: Today’s rates are low. Really low.

In fact, mortgage rates over the past couple years have been less than half the historic norm.

This makes mortgages cheaper and homes more sellable.

In short, buying a house is more affordable than it has been in almost 50 years. And mortgage rates are to thank.

Find a low mortgage rate (Nov 25th, 2020)

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Average 30-year mortgage rates since 1972

Year Average 30-Year Rate Year Average 30-Year Rate Year Average 30-Year Rate
1972 7.38% 1988 10.34% 2004 5.84%
1973 8.04% 1989 10.32% 2005 5.87%
1974 9.19% 1990 10.13% 2006 6.41%
1975 9.05% 1991 9.25% 2007 6.34%
1976 8.87% 1992 8.39% 2008 6.03%
1977 8.85% 1993 7.31% 2009 5.04%
1978 9.64% 1994 8.38% 2010 4.69%
1979 11.20% 1995 7.93% 2011 4.45%
1980 13.74% 1996 7.81% 2012 3.66%
1981 16.63% 1997 7.60% 2013 3.98%
1982 16.04% 1998 6.94% 2014 4.17%
1983 13.24% 1999 7.44% 2015 3.85%
1984 13.88% 2000 8.05% 2016 3.65%
1985 12.43% 2001 6.97% 2017 3.99%
1986 10.19% 2002 6.54% 2018 4.54%
1987 10.21% 2003 5.83% 2019 3.94%

New record lows for 30-year mortgage rates

When it comes to mortgage rates, expect the unexpected.

Rates can move unpredictably — sometimes in borrowers’ favor, and sometimes not.

2020 has been a buyer-friendly year so far. At the time we originally wrote this article (early February), rates were sitting comfortably at 3.5%.

We predicted they wouldn’t go much lower unless there were “unexpected moves” in the market.

And that’s exactly what happened. As COVID-19 continued to spread, interest rates plummeted.

By September 10, 2020, Freddie Mac’s survey recorded a new record low for 30-year fixed rates: just 2.86%.

Source: Freddie Mac

    Related

Can 30-year mortgage rates go lower?

The short answer is that mortgage rates can always go lower. But you shouldn’t expect them to.

Mortgage rates operate in their own market. Lenders have control over the rates they set, and many are content to keep rates (and profit margins) a little higher.

This helps stem the tide of home buyers and refinancers and keep their workload manageable.

In addition, mortgage rates have to answer to end investors.

When rates fall too rapidly, investors start paying less for mortgage-backed securities (MBS) — the financial instruments that drive mortgage rates.

This is because investors assume homeowners will refinance, paying off their loans faster and reducing the returns on interest.

Less money from investors, in turn, means lenders have to keep their rates a little higher, or charge borrowers bigger fees for lower rates.

So don’t expect mortgage rates to keep falling in lock-step with the rest of the market.

They could push lower, but they’re just as likely to stay stagnant. And sooner or later, they’re bound to rise again.

Verify your new rate (Nov 25th, 2020)

Historical perspective: Banner years for mortgage interest rates

The long-term average for mortgage rates is about 8%. That’s according to Freddie Mac records going back to 1971.

But mortgage rates can move a lot from year to year — even from day to day. And some years have seen much bigger moves than others.

Here’s a look at just a few, to show how rates often buck conventional wisdom and move in unexpected ways.

1981 — The all-time high

1981 was the worst year for mortgage interest rates on record.

How bad is bad? The average mortgage rate in 1981 was 16.63%.

  • At 16.63% a $200,000 mortgage has a monthly cost for principal and interest of $2,800
  • Compared with the long-time average that’s an extra monthly cost of $1,300 or $15,900 per year

And that’s just the average – some people paid more.

For the week of Oct. 9, 1981, mortgage rates averaged 18.63%, the highest weekly rate on record, and almost five times the 2019 annual rate.

2008 — The slump

2008 was the final gasp of the mortgage meltdown.

Real estate financing was available in 2008 for 6.03% according to Freddie Mac.

  • The monthly cost for a $200,000 mortgage was about $1,200 per month, not including taxes and insurance

Post 2008, rates declined steadily.

2016 —An all-time low

2016 held the lowest annual mortgage rate on record going back to 1971. Freddie Mac says the typical 2016 mortgage was priced at just 3.65%.

  • A $200,000 mortgage at 3.65% has a monthly cost for principal and interest of $915
  • That’s $553 a month less than the long-term average

Mortgage rates had dropped lower in 2012, when one week in November averaged 3.31%. But some of 2012 was higher, and the entire year averaged out at 3.66% for a 30-year mortgage.

2019 — The surprise drop-off

In 2018, many economists predicted that 2019 mortgage rates would top 5.5%. That turned out to be wrong.

In fact, rates dropped in 2019. The average mortgage rate went from 4.54% in 2018 to 3.94% in 2019.

  • At 3.94% the monthly cost for a $200,000 home loan was $948
  • That’s a savings of $520 a month – or $6,240 a year – when compared with the 8% long-term average

In 2019, it was thought mortgage rates couldn’t go much lower. But 2020 proved that thinking wrong again.

2020 — A new all-time low

Rates plummeted in response to the coronavirus pandemic in the spring of 2020.

By July, the 30-year fixed rate fell below 3% for the first time — and it kept falling to a new record low (at the time of writing) of 2.86% for a 30-year fixed-rate mortgage.

  • At 2.86% the monthly cost for a $200,000 home is $828 a month not counting taxes and insurance
  • You’d save $640 a month, or $7,680 a year — compared to the 8% long-term average

Due to the Federal Reserve’s promise of low interest rates post-COVID, mortgage rates are expected to stay low for years.

But as we’ve seen in the past, predictions about mortgage rates are often wrong.

That’s why when rates are good, experts recommend locking one in instead of waiting for potentially lower rates in weeks or months.  

Factors that affect your mortgage interest rate

For the average homebuyer, tracking mortgage rates helps reveal trends. But not every borrower will benefit equally from today’s low mortgage rates.

Home loans are personalized to the borrower. Your credit score, down payment, loan type, loan term, and loan amount will affect your mortgage or refinance rate.

It’s also possible to negotiate mortgage rates. Discount points can provide a lower interest rate in exchange for paying cash upfront.

Let’s look at some of these factors individually:

Credit Score

A credit score above 620 will open more doors for lower interest rate loans, though some loan programs such as USDA, FHA, and VA loans can be available to sub-600 borrowers. 

If possible, give yourself a few months or even a year to improve your credit score before borrowing. You could save thousands of dollars through the life of the loan. 

Down Payment

Higher down payments can shave your borrowing rate.

Most mortgages, including FHA loans, require at least 3% or 3.5% down. And VA loans and USDA loans are available with 0% down payment.

But if you can put 10%, 15%, or even 20% down, you might qualify for a conventional loan with low or no mortgage insurance and seriously reduce your housing costs.

Loan Type

The type of mortgage loan you use will affect you 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 subsidized 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.

So an initially lower ARM rate could rise substantially after 5, 7, or 10 years.

Loan Term

In this post we’ve tracked rates for 30-year fixed-rate mortgages, but 15-year fixed-rate mortgages tend to have even lower borrowing rates. 

With a 15-year mortgage, you’d have a higher monthly payment because of the shorter loan term. But throughout the life of the loan you’d save a lot in interest charges.

At a 3% interest rate for a $200,000 home loan, you’d pay $103,000 in interest charges with a 30-year mortgage paid off on schedule. A 15-year fixed-rate mortgage would cost only about $49,000 in interest.

Loan Amount

Rates on unusually small mortgages — a $50,000 home loan, for example — tend to be higher than average rates because these loans are less profitable to the lender.

Rates on a jumbo mortgage loan tend to be higher, too, because lenders have a higher risk of loss. Jumbo loans help shoppers buy high-value real estate.

Discount Points 

A discount point can lower interest rates by 0.25% in exchange for upfront cash. A discount point costs 1% of the home loan amount. 

For a $200,000 loan, a discount point would cost $2,000 upfront. However, the borrower would recoup the upfront cost over time thanks to the savings earned by a lower interest rate.

Since interest payments play out over time, a buyer who plans to sell the home or refinance within a couple years should probably skip the discount points and pay a higher interest rate for a while.

Some rate quotes assume the home buyer will buy discount points, so be sure to check before closing on the loan.

Understanding your monthly mortgage payment

In this article, we compare monthly payments for a $200,000 home loan at a variety of interest rates.

Understand that these examples show only principal and interest — the amount you’re paying each month toward your loan balance and interest generated.

Overall, your monthly mortgage payment will be higher than just principal and interest. That’s because there are other costs bundled in, including:

  • Property taxes —City and county governments levy annual property taxes to pay for public services. These taxes are usually prorated over 12 months and paid to your loan servicer along with your mortgage payment
  • Homeowners insurance — Homeowners insurance premiums average about $1,000 a year. As with property taxes, homeowners insurance premiums can be spread out over 12 months and paid with your mortgage via an escrow account
  • HOA fees — Condos, apartments, and gated communities may charge annual Homeowners Association fees which can be broken down into monthly payments added to the mortgage
  • Mortgage insurance — FHA loans, USDA loans, and conventional loans with less than 20% down payment require the borrower to pay for mortgage insurance. Mortgage insurance costs around 1% of the loan amount each year, although rates vary depending on the loan type and down payment. For a $200,000 loan that would equal $2,000 a year or $166 per month added to the mortgage payment

Collectively, it’s not unusual for taxes, fees, and premiums to add several hundred dollars to a monthly mortgage payment.

Closing costs affect the cost of borrowing, too

Interest rates have a huge impact on borrowing costs throughout the life of a mortgage loan, but it’s important not to forget the cost of upfront fees, too.

Closing costs typically add anywhere from 2% to 5% of your loan amount. Closing costs include loan origination fees, discount points, legal fees, appraisal fees, title fees, and more.

Many first time home buyers don’t know they can negotiate some closing costs such as the lender’s origination fee. However, many costs are pre-set by third parties such as attorneys and appraisers.

In some mortgage markets the home seller will help with closing costs. But it’s up to the buyer to negotiate this part of the transaction. A Realtor can help.

When choosing a mortgage, home buyers and refinancers should always consider closing costs along with interest rates.   

Determine your buying power with a mortgage calculator

The charts and graphs on this page show the way 30-year fixed-rate mortgages have changed over time and continue to change.

To see how today’s mortgage rates affect your borrowing power, use our mortgage calculator that includes PMI and other added costs.

Today’s historically low interest rates have increased buying power by lowering monthly payments for borrowers throughout the spectrum.

When to lock your mortgage rate

Keep an eye on daily rate changes. But if you get a good mortgage rate quote today, don’t hesitate to lock it in.

Remember, if you can secure a 30-year mortgage rate below 3% or 4%, you’re paying less than half as much as most American homebuyers in recent history. That’s not a bad deal.

Verify your new rate (Nov 25th, 2020)