Mortgage Rates Lowest in 40 Years

As in life, there’s good news and there’s bad news. Looking at our Louisville real estate home values and number of sales, we see that 2010 is a big improvement over 2009. That’s good news! But 2009 wasn’t a very good year, to begin with. That’s bad news. But now mortgage rates are at their lowest levels in 40 years.

Chart: Mortgage Interest Rates for the Past 36 Years

Many economists today have serious concerns over where our economy is heading with government spending on the rise and our deficit growing. That’s bad news. So where’s the counter-balancing good news? Mortgage rates!

Rather than plaster row upon row of 30-year fixed mortgage rate data on this site, wouldn’t you much rather look at some charts? First comes the recent past—here are the rates from the past 3 months.

Charts of Mortgage Rates: United States

Nothing earth-shattering in this 3-month chart but since May 6th the national average for 30-year fixed mortgages dropped below 5%. That’s pretty significant.

Chart: Mortgage Interest Rates for the Past 3 Months
On this chart, we see a smooth steady decline for the three-month period.

When we look back one year, we can see that most of the overall decline has occurred in just the past two months.

hart: Mortgage Interest Rates for the Past 1 Year
Overall, the past year has remained relatively flat but since the high in early April, rates have moved consistently downward.

Here we see that just as recently as 2000, interest rates were up around 8%. We’re now at almost 4% just a decade later.

Chart: Mortgage Interest Rates for the Past 10 Years
Rates hit a significant low back in the first part of 2004 then rose back up. Since 2009, they’ve been even lower.

This final chart really should give home buyers great enthusiasm. Rates aren’t likely to move much lower. Buying now could save a great deal of money over the term of the loan.

Chart: Mortgage Interest Rates for the Past 36 Years
It’s quite remarkable to see where rates are today. It appears that there isn’t much room for them to go lower.

Lower Rates Mean Lower Payments

Here in the United States, homebuyers used to contribute 20% down towards the purchase of their new home. This was primarily done in order to avoid the required private mortgage insurance (PMI). That number dropped to around 10% in 2003 according to Freddie Mac as more relaxed credit rules enticed more renters into homeownership with lower down-payment requirements.

Tom and Jerry Cartoon

For our example, let’s say home buyer Tom decides that he can wait until next year to purchase his new home. Since I can’t predict the future, let’s say rates only increase 1.5% from now until next Summer.

Tom grabs his Realtor finds a great bachelor’s pad and buys it for $200,000. Tom’s interest rate at this time is 6% on a 30-year fixed mortgage. Using our trusty mortgage calculator, we see that by putting down a whopping $40,000 to avoid PMI, the principal and interest portion of his mortgage is just $959.28. Sounds great, right?

Tom’s close friend, Jerry, decided that now was the time to buy. His Realtor found an amazing condo close to great restaurants that he bought for the same price—$200,000. The big difference is that Jerry’s current interest rate is just 4.5%. (A client of one of my mortgage broker friends just locked in on a rate of 4.125%.)

With this scenario, Jerry’s P&I portion of his mortgage is just $810.70—a difference of $148.58 a month! Over 30 years that’s $53,488.80. I guess that’s why Jerry always beats Tom in those cartoons.

Please note that the data reflected in these charts are national averages so numbers for our Louisville real estate market would be different.