, we have heard it a lot lately: mortgage rates are near historically low levels, and there is no better time to get a mortgage loan. Mortgage, Quicken Loans is not supposed to say that? If we look at the past 100 years in the history of the mortgage, we can see that it's actually true. It really was not a better time to get a mortgage loan, rates that are some of the lowest in our history.
the History of Mortgages in America
Although mortgages were there before the 1930s, had expected this decade than mortgages really started taking into America. When they were first put in place, many mortgage buyers required to make a down payment of 50% or more and the terms of the loan were nearly five or seven years.
the modern mortgage we know today took off after the great depression. The Federal Administration of housing (FHA) created a new program that has significantly reduced down payment requirements and extended the terms of the loan. They also provided a guarantee to banks in case of failure. This has enabled more people to buy a House and gave lenders an incentive to offer more loans.
interest rates were almost 6% at the beginning of the great depression, but they declined as we walked in the 1940s.
the SECOND world war of the years (Circa 1940)
the beginning of the SECOND world war decreased considerably the production of consumer goods, but also housing. With the world at war and the able-bodied men more far away, there was less demand for new homes, and supplies less were available to generate. Interest rates dropped to a new low of less than 5%.
when the war ended, the soldiers came home, started families and began to buy houses. The Veterans Administration has allowed returning soldiers to get a mortgage loan at a low rate with no down payment. The demand for mortgage loans have skyrocketed and the rate of interest increased for several decades.
1970s-1980s
in 1973, the Arab oil embargo began, significantly reducing oil supply and the economy to the test. In response to political issues, the Arab Organization oil exporting countries prohibited the United States and several other countries from buying their oil. This dragged America in a recession, which was marked by high inflation, where the price of goods rose and the amount people could buy with their money has declined. To help combat the high inflation, the federal reserve raised interest rates. This has helped keep prices stable but buying a home relatively more expensive.
aside from a minor dip in 1976, rates increased in the 1970s. In the early 1980s, interest rates were almost 17%. You might ask, "How could rates get higher? Well, they have not. These are some of the highest rates of interest in American history, and fortunately, they haven't happened since.
the economy rebounded later. America has experienced sustained economic growth and interest rates decreased over the next two decades.
image: DailyWealth.com
described above are the mortgage rates for loans of 30 years from 1910 to 2010. Major changes in rates correspond to the economic and political events, namely the great depression, the SECOND world war, the oil embargo and the 08 housing crash.
housing market Crash (Circa 07)
the years 190 and 00 has seen an increase in the price of housing, and a common assumption is that the housing prices would only increase. This, coupled with relatively low interest rates, has helped increase the demand for housing.
when demand increased, loan lenders created programs allowing buyers of riskier loans with lower incomes to buy a House. Some of these people would not be able to offer mortgages in the long term. Seemingly small increases in taxes or premiums hit hard many families, and they were unable to pay their mortgages. Houses of many people went into foreclosure. Interest rates have fallen even further, similar to rates that America saw after World War II.
Brexit (towards 2016)
more recently, the United Kingdom referendum vote to let the European Union mortgage rates dropped to historically low. The stock market took a major after this vote, as investors began to shift their money out of the stock market to safer investments, especially mortgage-backed securities, which are considered less risky stock market, but do not offer as much interest for investors. More money invested in these securities means, lenders have a supply of money to lend to you, resulting in interest rates come down. For this reason, interest rates are the lowest they have been in more than 30 years.
used
you heard much lately that mortgage interest rates are at historically low levels. Now you can see that this is not just talk. It has never been more affordable to buy a house or refinance your current home.
as we have seen time and time again, rates of interest, such as the economy, up and down. It is unpredictable, and we can never be some of when it will change, or how much. What is certain is this: mortgage interest rate will not be this low forever, and in the future, they have necessarily increase again.