"When are you going to settle down and buy a home?" Your mom asks this question with a glint in her eye that gives away her inner musing of visiting her future grandchildren playing in the backyard while she bakes them cookies in your oven.

"Back in my day…" pipes up your pop, reaching into his pocket for a crumpled card from one of the mortgage brokers he met at the gym. Yes, back in his day — you've heard it a thousand times, and maybe he has a point. After all, interest rates are much lower than when he first bought the home you grew up in. 

So, why keep paying thousands in rent each month when most of that money could be going to an investment you can live in as it increases in value?

Watch the cycle of interest rates

Interest rates reflect what's going on in the economy at any given time. For example, the pandemic of 2020 led to some of the lowest rates ever when interest rates dipped below 3% for the first time. By January 2021, rates were at an unprecedented low of 2.74%.

But those ultra-low rates weren't meant to last. A drawback on the mortgage stimulus, dramatic inflation growth, and higher benchmark rates — the minimum interest rate investors require for investing in non-Treasury security — all contributed to spiking mortgage interest rates in 2022.

As inflation starts to cool, interest rates are dipping back under the all-time average of just below 8% since Freddie Mac kept track of them in the early 1970s. But the downward swing doesn't signal that you should play the waiting game. The best time to buy a home is when you are financially ready, no matter the interest rate, as you can always refinance should lower rates make it financially rewarding.  

Back in the Day

Back in the 1970s, when your mom and pop probably bought their house, interest rates were a bit higher than they are now. Interest rates climbed to over 10% in December 1978. The rampant inflation meant interest rates continued to rise steadily, topping out at 18.45% in 1981.

Although efforts by the Federal Reserve to combat inflation helped some, interest rates remained in the double digits throughout the 80s. 

The 1990s: Peace and Prosperity

The 1990s saw a dramatic shift in the day-to-day world with the end of the Cold War and the increase of the internet and reality TV. Even the political approach shifted as the presidential campaigning came to late-night TV thanks to a saxophone playing Bill Clinton on the Arsenio show. 

For homebuyers, the prosperous economy translated to mortgage rates dipping into single digits for the first time in more than a decade by December 1990. Mortgage brokers and other mortgage professionals enjoyed prosperity, too, as business boomed.

If your parents took out a $120,000 mortgage at 18% in 1981, refinancing at 9% reduced their monthly principal and interest payment to $965 per month from $1,809. That freed up $844 monthly toward paying for the costs associated with rearing children and any liquid equity they received from refinancing.

The 1990s kept mortgage professionals busy with the refinancing boom as rates continued to slide. The interest rate wavered between 7% and 8% for most of the decade before dipping below 7% in 1998. The trend leveled off and started to rise slightly by March 1999, and the housing market started to slow slightly. 

A New Century

By 2000, the annual average interest rate had topped 8%. As rates slid below 7% again in 2001 and below 6% in 2008, a refinancing boom allowed homeowners to liquefy their equity easily, move from adjustable to fixed-rate financing, and save on monthly payments. Interest rates remained in the 5% to 6% range for the rest of the decade, averaging 5.04% in 2009. 

Interest rates hit a new low in 2010, with an average annual interest rate of 4.69%. The downward trend continued. By November 2012, they were at a record low of 3.35%. That means that if your parents took advantage of refinancing that original $120,000 mortgage, they were now only paying $529 per month for principal and interest.

Interest rates remained low for the remainder of the decade. Average annual rates were between 3.9 and 4.5 in 2019. 

Changing Times: 2020 and Beyond

The 2020 decade kicked off with much uncertainty in light of the COVID-19 pandemic. The Federal Reserve responded by cutting the federal funds rate to nearly 0% to stabilize the economy. 

By December of that year, a 30-year fixed mortgage came with an interest rate of just 2.68%. Rates stayed low through much of 2021, with an annual average rate of 2.96%.

If your parents again refinanced for the $120,000 amount at 2.68% in 2020, their payment plummeted to just $485 per month. And Pop bets that you're paying a lot more than that for rent — just ask him. 

Rates on the Rise

The Consumer Price Index increased by 8.5% in March 2022. This was the most significant spike in inflation since 1981 — when it spiked by 9%. During that time, mortgage interest rates for buyers were double-digit and topped out at more than 18%, remember?

Although 2022 rates have climbed steadily since March, they're nowhere close to what they were in the early 1980s. Entering the year at an average of 3.45, they rose to a monthly average rate of 6.9% by October. They inched downward again in November to 6.81% and, by December 1, were hovering at 6.5%. 

Take Out Your Mortgage at the Perfect Time 

You can see that the right time to take out your mortgage is when you're financially prepared. Don't wait for interest rates to go up or down. Find out now how much you can afford with your current budget. You won't find that info in a national mortgage professional magazine. 

Find the best mortgage professionals and work with top originators today!