Today, interest rates for a 30-year fixed-rate mortgage are hovering at around 4.16 percent.
That’s super cheap, especially compared with the rates 32 years ago when Freddie Mac released its weekly Primary Mortgage Market Survey, showing that interest rates were above 18 percent for the last time in history (we hope).
For a brief spell in 1981—from Sept. 11 to Nov. 13—interest rates topped 18 percent for a 30-year fixed-rate mortgage, according to Freddie Mac’s surveys of mortgage lenders.
The surveys date back to 1971, when interest rates were about 7 percent. They began really climbing that decade, to more than 12 percent. Then, within the first four months of 1980, they jumped from 12.85 percent to over 16 percent. They wobbled around before hitting 18.63 percent on Oct. 9, 1981—the highest rate ever recorded.
Inflation was the main reason for these, well, inflated rates. In the mid-1970s, the inflation rate—measured by the Consumer Price Index—was above 5 percent (compare that to today’s rate, which is 1.3 percent). By the end of the decade, inflation was above 10 percent and began creeping up to 15 percent.
So think about this: If you’re a lender and you are giving someone a 30-year loan for $150,000, you know that over time that $150,000 becomes less valuable—by the next year alone it could be worth 15 percent less than it is today. So in order to make your loan worthwhile, you’re going to charge a much higher interest rate.
And if you guessed that the Federal Reserve had a hand in this, you’d be right. To stop this inflation, the Fed didn’t want credit to come easy to consumers. That would have given consumers more money to spend, fueling inflation. So they kept raising interest rates until inflation—and the economy—was at a standstill.
After that debacle, interest rates slowly came back down to the 9 to 10 percent range before settling in around 7 percent throughout the mid- to late 1990s. In the 2000s interest rates hovered in the range of 5 to 7 percent before falling in 2009 to less than 5 percent.
The lowest rates recorded were 3.31 percent, on Nov. 21 of last year.