Mortgage Rate History

Many people like to tell prospective real estate investors and home buyers that they have the discovered the magic formula of predicting changes in mortgage rates by studying mortgage rate history but, by and large, these magic formulas never pan out. If there is one thing to be learned by studying the history of mortgage rates, it is that they are extremely unpredictable. Just looking at a short-term or long term graph, the erratic ups and downs tell the whole story. Other types of interest rates, such as the prime rate, can stay the same for months, sometimes over a year. A single mortgage rate, however, has no such longevity.

Just two years ago, as one of the hardest hitting recessions hit the U.S. and expanded across international boundaries, rates on 30-year fixed mortgages fell to a 37-year low. This was just as it was becoming known that one of the primary reasons for the recession were high-risk, adjustable rate home loans. As people who could barely make the payment on the introductory rate began to be hit by the increased payment brought on by a higher rate, they began to default and be forced into foreclosure. Mortgage rate history does show that fluctuations in the economy have an effect on mortgages, but these economic fluctuations cannot be predicted, and there is no way to determine how long they will last.

As can be expected, mortgage rate history also shows the reverse to be true. In times of economic expansion, mortgage rates will usually rise. Not always, but most of the time. The rise and fall of mortgage rates are not only dependent on the prime interest rate, the rate banks give to their best customers with perfect credit, but several other economic factors play in that cannot be so predicted.

Mortgage rate history and current rate are also not the only factor that a prospective home buyer should be looking at. While rates may fall in a recession, housing prices may be on the rise. If the interest rate falls lower than outright prices are rising, then home buying in the recession may be the best time. If prices rise more than can be made up by the lower interest, then it is best to wait. Again, the problem becomes how long to wait. This can never be determined, so there is always some risk that a home buyer will not be buying in the most advantageous position.

Another reason why studying the history of mortgage rates may not always indicate the best time to buy a home is because it can never be determined if and when the federal government will step in with a program. In 2008, mortgage rates hit that 37-year low in big part because the federal government spent $600 billion dollars to buy up mortgage-related securities issued by troubled banks. Rates lowered after the federal government began this program and another to modify existing home loans from high adjustable rates to low fixed rates. These programs are not only unpredictable as to their passing, but they are also unpredictable as to the effect they will have on mortgage rate trends.

The best advice to find a lender or other financial advisor who is looking at the big picture, including all other possible factors, instead of only at mortgage rate history. Only then, will the risks be reduced as much as possible.