Mortgage Rate Trends: Historical Home Loan Interest Rates Explained

Mortgage rates can often be confusing for those not well-versed in the industry, but understanding how these rates work (as well as the historical home loan interest rates and how they’re determined) is vital if you’re buying or investing in real estate.

To start, it’s important to understand that there are multiple mortgage markets: the one consumers participate in (called the primary market), and the one that lenders and investors take part in (referred to as the secondary market).

In the primary market, mortgage lenders loan consumers money to purchase properties. In the secondary market, those consumer loans are bundled up and then sold off to investors and servicers.

For the purpose of this article, we’re going to focus on the primary mortgage market and what the history of mortgage interest rates has looked like for the American consumer over the past few decades.

The Mortgage Loan Rates History in the U.S.

Freddie Mac, officially known as the Federal Home Loan Mortgage Corporation, is one of the major purchasers and re-sellers of mortgage loans on the secondary market. The organization has been keeping tabs on mortgage rates through the years since its inception in 1971, and a quick look at the data is clear: historical home interest rates have been much, much higher than consumers are seeing right now.

Going back to the beginning of the home mortgage rate history, the first recorded 30-year mortgage rates were in the low- to mid- 7% range, and 1972 saw an average rate of 7.38% across the year. Interest rates crept upward over the next decade, clocking in at over 16% in 1981 and 1982.

Throughout the 1980s, mortgage rates hovered around 10%, eventually dropping back to the 7% range by the late ‘90s. In the 2000s, rates dropped even more, reaching as low as 5.04% in 2009. Since then, interest rates have fluctuated 3% and 5% for almost the last decade. In September 2019, rates notched their lowest monthly average since 2016 at 3.61%.

Here’s a quick look at interest rate trends on 30-year, fixed-rate mortgages for the last 40-plus years:

History of Real Estate Interest Rates 2005-2010 (Plus Other Years Before and After Them)

Interest rates on 15-year mortgages followed a very similar trajectory, though Freddie Mac has only been tracking them since 1991. At their highest point, 15-year mortgages averaged an 8.69% rate (in September 1991), and at their lowest, they dropped down to 2.66% (in December 2012). Keep in mind that shorter-term loans typically offer lower interest rates than longer-term ones, because they’re less risky for lenders to take on.

Here’s how interest rates looked year over year on 15-year loans:

In what year did consumers get the best deal on a mortgage? 1978 1980 1982 1983

Among the four years above, consumers got the best deal on a mortgage in 1978. That year, the average mortgage interest rate was 9.64%.

What Is the lowest mortgage rate in history?

Based on the data in the table above, the lowest mortgage rate in history since 1971 is 3.65%. 

Adjustable Mortgage Interest Rate Trends

Freddie Mac also tracks 5/1 adjustable-rate loans, which carry a fixed interest rate for the first five years of the mortgage, then fluctuating after that. Adjustable-rate mortgages (or ARMs) hit their highest point in July 2006, when they clocked in with an interest rate of 6.36%. Their lowest point came in May 2013, when interest rates dropped to just 2.61%. ARM rates have hovered in the 3% to 4% range since late 2016.

Here’s how the interest rates on 5/1 adjustable-rate mortgages break down since 2005 (the first year Freddie Mac began tracking them):

How Individual Mortgage Rates Are Determined

Now, the trends discussed above pertain to average mortgage interest rates — the typical interest rate assigned to fixed- and adjustable-rate mortgages for any given time period. But in reality, not all borrowers are granted these rates, and interest rates can vary greatly from loan to loan (even if those loans are originated around the same time).

Though current market rates certainly play a role in what a borrower is offered on a mortgage loan, lenders also consider a number of other factors, including:

• Credit score – Borrowers with higher credit scores (think 760 or higher) are considered a lower risk than others. Because of this, they typically qualify for lower interest rates — both on mortgage loans and other types of financing.
• Credit history – A borrower’s history with credit also factors in. Borrowers with a longer history of consistent, on-time payments are considered less risky than borrowers with short credit histories (or no credit history at all).
• Loan-to-value ratio – Lenders will also look at the loan-to-value ratio involved in the purchase — or how much of the home’s value is actually being financed. For example, if a consumer makes a 10% down payment and uses a mortgage loan to finance the rest, the loan-to-value ratio (or LTV) is 90%. Generally, the lower the LTV, the better interest rates a borrower will qualify for, as this reduces the risk for the lender.
• Debt-to-income ratio – Mortgage lenders will also consider a borrower’s debt-to-income ratio — or the amount of debts they have in comparison to their monthly income — when making an interest rate decision. They’re particularly interested in the “back-end” DTI, which includes the estimated future mortgage payments.

There are other factors that matter, too, including the length of the loan you choose, the type of loan (fixed-rate or adjustable-rate), and the home you’re purchasing. Mortgage rates also vary by lender, which is why most experts encourage consumers to shop around when applying for a loan.

We Know Mortgages

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