mortgage interest rate

Mortgage Rates are Low… and Always Have Been

To say that today’s mortgage rates are low is more than a understatement. Today Mortgage Rates are microscopic. I mean tiny!

It’s late august 2016 as I write this post for my finance blog. A fixed rate 30 yr mortgage on average at this moment is approximately 3.39%. This means your gonna pay about 886 for a 200,000 loan. Compare that to say November 1990 when the average 30 year fixed rate mortgage was 10.1%! Then your girl friends big hair would have been paired with a just as big 1,770 monthly payment on a loan the exact same size as the one that you’re paying under 900 for!

So if rates are so low then we should all refinance and buy homes ASAP so we don’t miss out. Right? Afterall rates are just like the stock market it goes up and down. so buy low and sell high… Right? Well, not really. Rates always have gone down.

Here is the thing you start to notice as you research this topic… mortgage rates always go down. They have been going down steadily for decades and decades. I looked over about 36 years of data and the clear theme is a downward trend for mortgage rates. See for yourself check out the list below.

The list I made are the high and low home loan rate averages for each decade. I included the last four decades.

2010 – August 2016

  • The High was 5.1% in April 2010
  • The Low is Today basically at 3.39% as stated earlier.

2000 – 2009

  • The High was 8.52% in May 2000 (after we realized y2k really was not so bad)
  • The low was 4.81% in April 2009 (Hopefully you didn’t buy that investment condo like your friend suggested)

1990 – 1999

  • The High was 10.1% in November 1990
  • The low was 6.7% in October 1998

1980 – 1989

  • The High was 18.45% in October 1981
  • The low was 9.04% in March 1987

There seems to be a pretty clear trend. But I don’t really know why. It’s almost as if it’s being lowered so banks have a reason to get everyone to refinance every single decade. But here is my big question…

What happens when we start to go back up? Do we ever Go back up?

Truthfully I find this whole thing rather spooky. The fed rate is almost zero. We can’t lower the rates any more. I have no idea what is gonna happen. What seems most likely is that we just stagger flat right where we are for about a decade and nothing special really happens. My fear is that such a scenario is the best case scenario.

See the fed uses the rate to control the economy, and when the economy starts performing poorly it lowers the rate to make money “cheap” so people will be more likely to lend and borrow. That sounds great except we always forget to raise the rates back up, and over time the fed rates have just gotten smaller and smaller. So now we have nothing to protect us from another “housing bust” or “tech bubble” or whatever financial misery awaits us. Perhaps the “interest rate collapse”. Who knows?

But back to the question originally posed; Should you refinance?

Well historically yes because rates are at all time lows. Now you could argue that rates are always at all time lows and you should just wait until it inevitably drops again. I would agree with the latter except for the fact that the fed can’t drop it’s rate so this must be the bottom.

So the final answer is yes you should refinance into today’s low rate mortgage. As long as it will drop your monthly payment enough to cover the hassle and the cost of signing a new loan.

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