Nearly every article about today's low mortgage rates uses the term "historically low" to encourage consumers to take advantage of these low interest rates to borrow money for a home purchase or to refinance their current mortgage.
A quick historic look at mortgage rates proves the point: the last peak in mortgage rates, according to charts created by MortgageNewsDaily.com, was in 2000, when mortgage rates averaged 8.05%.
The MortgageNewsDaily.com chsrt goes back 36 years to 1975, when the average mortgage rate was 9.05%.
Mortgages as we know them now essentially came into existence with the creation of the Federal Housing Adminstration (FHA) by President Franklin Roosevelt in 1934 as a one more way to help families and the devastated U.S. economy in the Great Depression.
Prior to the creation of the FHA, most mortgages were approved for a maximum of 50% of the value of the home. There was no such thing as paying off that other 50% over 15 or 30 years. Instead, the mortgages typically needed to be paid as a balloon payment within 3 to 5 years.
High mortgage rates make home purchases less affordable for everyone except cash buyers. In 1981, the peak during the past 36 years, the average mortgage rate was 16.63%.
As an example, a $100,000 mortgage loan at 16.63% would carry a monthly prinicpal and interest payment of $1,345.
At the most recent peak rate of 8.05% in 2000, a $100,000 mortgage loan would cost $737 for monthly principal and interest.
Today, at the average mortgage rate of 5.04%, a $100,000 mortgage costs only $539 per month, a savings of nearly $200 compared with just 10 years ago.
The difference in mortgage rates has a huge impact on the U.S. economy, with families finding themselves able to afford a home purchase or to reduce their monthly housing spending as rates drop.
Written by Michele Lerner
HULIQ.com
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