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Are you getting a good mortgage rate, historically speaking?

By agedleadstore
Are you getting a good mortgage rate, historically speaking? Feature Image
3 minute read

Mortgage rates are on the move again, but this time they’re heading down.

At the beginning of August, Mortgage News Daily had recorded 30-year fixed-rate averages at 5.05% — a far cry from the 6% range that appeared in mid-June.

The reason? Home demand is finally softening in light of inflation, unemployment, and other economic factors playing out in the background.

According to experts, it’s a common misconception that when the Federal Reserve raises its funds rate, mortgage rates will follow. These two rates follow different tracks, yet are influenced by similar factors.

Mortgage News Daily and other news outlets reported that by the time the Fed made its most recent 0.75% move, mortgage rates had already factored in the common influences and had reached their peak.

A common theme in the news as mortgage rates fluctuated was, “These rates are still low — historically speaking.” But what does this mean to the average consumer?

Mortgage experts say that it’s easy to get caught up in the day-to-day mortgage rate fluctuations, but what’s really important is the bigger context.

For example, in the 1980s, rates reached higher than 18%. Compared to the record lows consumers saw last year, 18% is astronomical.

But is it fair to compare today’s rates to record highs from the 1980s? Experts say yes — because today’s rates are indeed historically favorable if consumers see the graph.

The St. Louis Federal Reserve published a graph with mortgage rate data spanning from April 2, 1971, to today.

On April 2, 1971, rates were 7.33%. In the 1980s, rates began at around 13% and ended the decade at around 10%. In the mid-1990s, rates were once again at around 9%.

Since the mid-1990s, rates have steadily fallen before reaching record lows below 2.7% during the Covid-19 pandemic. The graph also marks periods of recession, to provide context for how these periods impacted rates.

While home prices significantly impacted affordability for many borrowers, experts say recession fears have currently brought down mortgage rates.

In other words, during these periods, homeowners are offered another opportunity to either refinance to snag a lower rate, tap into home equity, or purchase a home at a more affordable price.

Overall, experts say what defines an “affordable rate” has much less to do with what’s going on in the world, and much more to do with where a borrower lives, their credit score, and how much they are able to put down on the home.

The biggest piece of advice experts have for borrowers is to shop around for the best rate, and for the lender who is willing to help them get the lowest rate possible for their unique circumstances.

Image by Alexandr Podvalny.

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