Imagine buying a house with a credit card's interest rate of 15 percent. In 1982, that would have been a great deal. A buyer borrowing $90,000 at the average 30-year rate of 16.04 percent in 1982 would have had payments of $1,210 per month. As of the date of publication of this article -- when the average rate was well below 4.0 percent -- a buyer could have the same payment of $1,210 per month on a 30-year mortgage for a house priced at $254,000. The average rate depends on the type of mortgage as well as historical and personal factors.
Comparing Types of Mortgages
Average interest rates depend significantly on the type of mortgage you get. Adjustable-rate mortgages typically have the lowest rates for the first few years of the life of the loan, during which the rate is fixed. The fixed-rate period can be for anywhere from one to 10 years, after which it is adjusted each year based on an index rate. Rates on ARMs may be zero percent to 3 percent less than fixed-rate mortgages. Fixed-rate mortgages with terms of 15 years generally have rates about 0.5 percent less than 30-year mortgages because prevailing rates are less likely to change during the shorter term of the loan.
Historical Trends in Average Rates
Average interest rates have shifted significantly during the four decades since the Federal Reserve started tracking rates. Interest rates hovered around 8 percent during much of the 1970s, but they spiked significantly in the 1980s. During 1981 and 1982, for example, average rates on new mortgages exceeded 17 percent during some months. From there, rates dropped steadily until they reached about 7 percent in 1994. For the rest of the 1990s, rates fluctuated between about 7 percent and 9 percent. They dropped again after 2000, and hovered around 6 percent until about 2008, when they started dropping even farther.
2012 Average Interest Rates
Mortgage interest rates reached historic lows in 2012, largely because of the recession and the need to stimulate the housing market. In late October 2012, the average 30-year fixed-rate mortgage rate hit 3.6 percent, and the average 15-year fixed-rate mortgage rate was only 2.9 percent. Adjustable-rate mortgages had fixed rates of 2.7 percent for the first five years.
Personal Factors That Affect Mortgage Interest Rates
Although average interest rates reflect the country as a whole, not everybody gets the average rate. Your credit score is the factor with the most impact, and you'll usually need a score of 760 to qualify for the lowest interest rates. Borrowers with spotty credit history are offered higher interest rates on their mortgages. Other personal factors that can affect rates include the home purchase price, the size of your down payment, and your debt-to-income ratio.