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Home / What Is Today’s Mortgage Rates? What Will Happen In The Future?

What Is Today’s Mortgage Rates? What Will Happen In The Future?

What is today's mortgage rates and what will happen in future

How is mortgage rate history useful?

Mortgage rate history can be a boring topic. Definitely, you might subscribe to the Henry Ford school, which believes that most history is bunk.

Nonetheless, understanding how mortgage rates behaved in the past might help you realize what may possibly happen to them as time goes on. That knowledge can help you avoid serious mistakes which may cost you thousands.

So continue reading, as the following information is quite interesting!

What moves mortgage rates?

It’s very unusual that your original mortgage lender still owns your mortgage. Usually, your loan could have been packaged up with a pile of others right into a mortgage-backed security (MBS) and sold off to investors. There’s such called a “secondary market” in MBSs, and it’s quite possible your mortgage will be bought and sold multiple times — without you getting notified a thing about it.

When you hear “investors”, you almost certainly think about Warren Buffet or someone on Wall Street who runs your pension. Buyers of American MBSs are simply as likely to be civil servants in Beijing or bankers in London, Tokyo, Singapore or somewhere much more exotic. In these days, it’s a worldwide market.

Investors’ changing needs

The purpose of those investors is always to have a balanced portfolio. They need lots of exciting, high-yield investments to make the most of the good times. However they also need plenty of ultra-safe, low-yield securities to keep them afloat during stormy periods.

The safest of most securities are bonds issued by the U.S. Treasury. But American MBSs are considered to be pretty safe too. That’s why there’s a close (but far from perfect) relationship between yields on 10-year Treasury bonds and rates on new fixed-rate mortgages (FRMs). They often move around in the same direction, but mortgage rates are bit higher because mortgages certainly are a little riskier than Treasuries. In the end, homeowners sometimes default, however the American government never does. At least, not so far.

When economies are vulnerable, demand for safe securities rises. And that’s a thing that pulls down yields and interest rates.

For instance, suppose that couple of years ago, you purchased a $1,000 bond paying five percent interest ($50) annually. (This is known as “coupon rate.”) That’s a fairly good rate today, so plenty of investors want to buy it from you. You sell your $1,000 bond for $1,200.

When rates fall

The buyer gets the same $50 a year in interest that you were consistently getting. But because he paid more for the bond, his interest rate is currently five percent.

  • Your interest rate: $50 annual interest / $1,000 = 5.0%
  • Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%

The buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.

When rates goes up

Yet, if the economy heats up, the possibility of inflation makes bonds less appealing. With fewer people attempting to buy bonds, their prices decrease, and then interest rates go up.

Suppose you have your $1,000 bond, though you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You wind up getting $700. The buyer gets the same $50 a year in interest, however the yield appears like this:

  • $50 annual interest / $700 = 7.1%

The buyer’s interest rate is a bit more than seven percent. Interest rates and yields aren’t mysterious. You calculate them with simple math.

When economies look rosy, portfolio managers prefer less safe and more profitable investments, pushing yields and rates upward.


It’s been such a long time since inflation (rising prices resulting in reduced purchasing power) was a significant issue in the United States that we’ve all but forgotten how scary it could be. We’ve also forgotten just what a big effect it can have on mortgage rates. The inflation rate (measured by the consumer price index or CPI) has been above 4.0 percent only once (2007) within the last 26 years. That was a momentary blip, but between 1974 and 1980, it had been over 12 percent for three years.

Some fear that inflationary pressure is building again in this country. They indicate two inflation risk factors: years of setting low rates by the Federal Reserve, and the chance that recent tax cuts may cause the economy to overheat. Events might or might not prove all of them right. But many believe the surge in mortgage rates during January 2018 was largely because of those fears.

You can view why. Imagine how you’d feel if you lent someone hundreds of thousands of dollars for 30 years at a fixed rate of 4.0 percent. Then your inflation rate jumped to 12.0 percent and even just 6.0 percent. You’d end up losing a lot.

Mortgage rate history and the future

When you wish to find historical data about mortgage rates, your very best source might be Freddie Mac’s archives. It’s been keeping accurate, consistent and comparable records since 1971. The information that follows pertains to 30-year FRMs.

Lesson 1: Low rates aren’t normal

The first lesson from mortgage rate history is that individuals aren’t surviving in normal times. After eight years during which annual average mortgage rates have now been at or near record lows, you might be tempted to consider inexpensive home loans are normal.

You’d be wrong. Rates were over 5.0 percent or 6.0 percent each year between 2001 and 2009. In 2000, they averaged 8.05 percent.

Worse, for the 11 years from 1979 until 1990, these were above 10 percent. Indeed, from 1980 until 1984, these were above 13 percent. Which includes 1981 and 1982 once they were over 16 percent.

Lesson 2: 30-year, fixed-rate mortgages might not always be available

In recent years, roughly 90 percent of homebuyers and refinancers have opted for 30-year FRMs. Considering the fact that low rates probably won’t last a lot longer, that seems an intelligent move for some. (Although people who be prepared to proceed quickly may be better off with a hybrid adjustable-rate mortgage, or ARM. )

7-Year ARM rates perfect for modern homeowners

Now, it’s true that 30-year FRMs have already been around because the 1930s. But this is simply not the case in most countries beyond your US. And even in the US, that’s no guarantee they’ll go on forever.

Borrowing in the 1930s was no fun. You an average of had to discover a 50 percent down payment, had to settle or refinance the loan after five or 10 years, and also you got an adjustable rate that floated with other loans.

But enough nightmarish mortgage history. Let’s return to today’s 30-year FRMs. Few other higher level nations offer them, not least because they’re only viable if supported by governments (i. e. taxpayers). And plenty of lobbyists here at home are pressing because of their scrapping. For instance , Edward Pinto of the inner Center on Housing Risk at the American Enterprise Institute wrote in Forbes a couple of years ago:

“The 30-year fixed rate mortgage should be retired — for good. Despite continued proof that it fails to build up wealth for the most disadvantaged Americans, and that mortgage debt should not be a burden as homeowners approach their 50s and 60s, misguided advocates maintain that the 30-year fixed rate mortgage should be at the core of the U.S. housing finance system”

Lesson 3: Inflation is the enemy of low rates

We’ve already discussed the threat inflation poses to low-interest rates. But mortgage rate history underscores that message.

The big lesson

Those three lessons soon add up to one big one: Batten down your financial hatches.

Which means setting up place now the type of borrowing that’s more likely to suit you for as long in to the future as you are able to predict. There are numerous signs the entire home-lending landscape could change in coming years. And mortgage rate history teaches us that landscape might be not even close to being pretty.

What exactly are today’s mortgage rates?

Current mortgage rates continue to be in the low- to mid-4 percent range, creeping up but affordable. You’ll find the very best deal by comparison shopping, making yourself as attractive a borrower that you can possibly be, and perhaps considering ARM loans.

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