Mortgage Rate History

Some people try to figure out what direction the cost of borrowing money to buy a home will go based on mortgage rate history. Looking back over the years may help to put current mortgage rates into perspective.

Mortgage rates vary over time.

Prior to 1938, mortgage rates were not stable across the country. The rate a homeowner would be charged would depend on which lender they were dealing with and where they lived. In 1938, Fannie Mae was created by President Franklin D. Roosevelt to help families afford to buy homes or stay in the homes they had already purchased.

This step meant that mortgage funds became readily available nationwide and interest rates stabilized. At that point in time a consumer could get a mortgage rate as low at 3 percent. In the 1940s, rates stayed on the low side since buying a home during World War II was quite difficult.

In the 1950s and early 60s, mortgage rates continued to remain in the affordable 5-5.5 percent range.

In 1968, Fannie Mae was re-chartered under an act of Congress to become a company solely owned by shareholders. The investors came from around the world. The company continues to operate today.

Fannie Mae doesn't lend money directly to consumers. Instead, the company offers financial products to lenders to make it easier for the lenders to fund mortgages for customers.

Starting in the early 1970s mortgage rates started to rise. By the end of that decade, owning a home was out of reach for many people. If you didn't have a stellar credit rating at that point, a lender may have asked for up to 23 percent for a mortgage.

One of the reasons why interest rates went through the roof at that point was due to price controls being very closely linked to the price of oil. Supplies available to American consumers decreased and the overall economy suffered. At that point in time it wasn't uncommon for people to line up for hours to try to buy gasoline only to find out when they got to the pumps that the station was completely sold out.

Home ownership became more affordable in the 1980s, with the introduction of President Ronald Reagan's economic strategy. Reagan-omics was responsible for interest rates going down to much more affordable levels again. This downward trend started in the early 80s and is still continuing today.

Home buyers in the 1990s were able to get mortgage rates in the 7-9 percent range. Starting in 2001, rates have dropped by an average of a couple of percentage points.

On July 31, 2008, mortgage interest rates eased slightly to approximately 6.5 percent for a 30-year term. This is a good sign for people wanting to buy a home or refinance an existing mortgage.

Falling prices for oil were cited as being part of the reason why mortgage interest rates dropped. This easing of prices for oil and the lower gas prices that resulted were good news for consumers. At the same time, the supply of homes for sale dropped for the second straight month. Some financial experts cite this as an indication of potential improvement in the U.S. economy.

Will mortgage interest rates go back up to double-digit levels again? It's hard to tell. U.S. Homeowners and potential buyers continue to hope that low levels of interest charged will remain part of mortgage rate history for good.

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