In recent years, prospective homebuyers have watched mortgage interest rates rise steadily from the 2% to 3% range up to a high of almost 8% last year. Steep interest rates have made it more difficult to afford homes.
But are rates that high in a historical sense?
Imagine being in the market for a home in the 1980s, when rates peaked above 18%. Over the past several decades, the median rate for a 30-year fixed mortgage has been around 7%, which isn't too far from where rates are landing today.
However, other factors are also making homeownership unaffordable, including high home prices, limited inventory, sluggish wage growth and the overall high cost of living.
The tide could be starting to turn, though experts anticipate volatility in the mortgage market. The Federal Reserve has started to drop its benchmark interest rate, which will influence how banks and lenders adjust borrowing rates overall.
Although experts say mortgage rates will eventually go lower over the next couple of years, it's unlikely we'll return to the housing market of the pandemic era, when homeowners snatched up rock-bottom mortgage rates and have held on to them since.
Here's a look at mortgage rates historically and how to interpret where we are now.
What is the lowest mortgage rate in history?
The lowest mortgage rate we've ever seen is in recent memory.
During the COVID-19 pandemic in 2020 and 2021, average 30-year fixed mortgage rates dropped to 2.65%, according to Freddie Mac data. That's the lowest average rate for a 30-year mortgage term since rates started being tracked in the early 1970s.
Jacob Channel, senior economist at LendingTree, said those cheap rates were due to the environment's economic uncertainty. The Fed reduced its baseline rates as low as possible, which pushed lenders to do the same in an effort to stimulate the economy.
💵 What to know 💵
Mortgage rates aren't set directly by the Fed (nor any single entity) but are determined by an array of economic factors, including inflation, bond yields and even investor expectations. Average rates also fluctuate daily and vary by lender.
This wasn't an anomaly. During severe downturns or recessions, the central bank usually lowers interest rates to encourage spending and borrowing. Otherwise, consumers might be nervous about making significant financial transactions, like buying a house.
What is the highest mortgage rate in history?
The highest mortgage rate recorded for a 30-year fixed loan was 18.63% in 1981. Compared with today's mortgage rates, that number is gigantic, Channel said.
At the time, the economy was witnessing something uniquely different from the COVID era. The early 1980s was characterized by "stagflation," a period of high inflation, high unemployment and slow economic growth, according to Channel.
Then-Fed chair Paul Volcker attempted to address the issue by dramatically raising the central bank's benchmark rate to cool inflation in an experiment known as the Volcker Shock. By slamming the brakes on the economy and raising prime interest rates by over 20%, mortgage rates reached their highest point ever.
Historical rate trends since the 1970s
Though mortgage rate affordability depends on your financial situation, what's considered a good mortgage rate is generally at or below the national average. Since 1971, the median 30-year mortgage rate is 7.4%, according to Freddie Mac.
Historical rates from Freddie Mac
| Years | Average mortgage rate | Lowest mortgage rate | Highest mortgage rate |
|---|---|---|---|
| 1971-1975 | 8.27% | 7.23% | 10.03% |
| 1976-1980 | 10.45% | 8.65% | 16.35% |
| 1981-1985 | 14.45% | 11.09% | 18.63% 📈 |
| 1986-1990 | 10.24% | 9.03% | 11.58% |
| 1991-1995 | 8.25% | 6.74% | 9.75% |
| 1996-2000 | 7.57% | 6.49% | 8.64% |
| 2001-2005 | 6.21% | 5.21% | 7.24% |
| 2006-2010 | 5.70% | 4.17% | 6.80% |
| 2011-2015 | 4.02% | 3.31% | 5.05% |
| 2016-2020 | 3.84% | 2.66% | 4.94% |
| 2021-2024 | 5.39% | 2.65% 📉 | 7.79% |
Mortgage rate trends since 2020
The most recent roller-coaster ride of mortgage rates started in 2020.
The early days of the pandemic brought the historically low 2.65% interest rate for a 30-year fixed mortgage, and rates stayed relatively low until 2022. That's when the Federal Reserve began raising its baseline rates to cool inflation, which led to higher mortgage rates over the next couple of years, until today.
The massive uptick caused many buyers to get priced out of the housing market. "Interest rates play a huge factor in what you qualify for in a home," said Rose Krieger, a home loan specialist at Churchill Mortgage.
Rates started trending downward in 2024, and the Fed cut its benchmark interest rate by 0.5% in September and by 0.25% in November. But it's not a slow and steady march. Since the Fed started reducing interest rates, rates for home loans have jumped up and down and may continue to be volatile for a while.
Longer-run expectations for home loan rates put the average 30-year fixed mortgage rate somewhere between 5.5% and 6%.
What factors affect mortgage rates?
Broadly speaking, mortgage rates change based on how the overall economy is doing, according to Channel. But of course, it's more complicated than that.
Borrowing rates for mortgages tend to be less expensive when the economy isn't doing great -- rates tend to be pricier when there are signs of economic growth.
Policy changes from the Fed don't have a direct, one-to-one impact on mortgage rates. But they do play a role. The Fed sets its federal funds rate to achieve its goal of maximum employment and stable inflation. In slower economies, the Fed might drop interest rates to influence banks and lenders to do the same, and the opposite is true in strong economies.
Inflation also plays a role. High inflation often correlates with high interest rates. And there's the supply-and-demand factor. Banks sometimes lower mortgage rates to attract more borrowers when demand is otherwise low.
Ultimately, a variety of economic factors combine to influence mortgage rates, with actors like the Fed and banks often trying to make adjustments in either direction to keep the economy humming along smoothly.
Will mortgage rates ever fall to 3% again?
The sub-3% interest rates came at a unique time in history: the onset of the COVID-19 pandemic, when uncertainty was high and the economy threatened to grind to a halt. These unique circumstances led the Federal Reserve to slash the federal funds rate to zero, allowing banks to charge historically low mortgage rates.
The idea was to drive demand for housing at a time when Americans were otherwise hesitant to enter the market. But experts say that's not where we are today, and we're unlikely to get there again, barring another global catastrophe.
What can homebuyers do now for lower rates?
Not every homebuyer gets quoted the same mortgage rate. Your personal mortgage rate depends on factors specific to your financial profile. Here's how you can get the lowest rate possible:
✔️ Work to improve your credit score. This is a long-term strategy, but it can have a big impact. "The better your score is, the better your rate is going to be," Krieger said.
✔️ Increase your down payment. If you can pay more upfront, this reduces the lender's risk and might influence them to lower your rate, Krieger said.
✔️ Shop around. Different lenders might quote different rates for the exact same person, Channel said.
✔️ Avoid taking on other new debt. It's not a great move to take out a car loan or other new debts right before you apply for a mortgage. That increases your risk profile and can lead to higher rates, Channel said.
