Home Debt Comparing Mortgage Rates a Generation Later

Comparing Mortgage Rates a Generation Later

by My Journey to Millions

I don’t think many people actually understand how low the mortgage rates really are today and how those low rates work with an amortization payment schedule to make real property purchases an amazing opportunity.  I recently had a conversation that reminded me that we are in uncharted territory historically speaking.

historical 30 year mortgage fixed rates

At every twist and turn in the house selling and purchasing process I have looked forward to getting my boss in his office to talk it out with him as I respect his opinion and at almost every opportunity he has provided insight that The Wife and I just didn’t think about.  I don’t think he really understand how much I appreciate the advice he gives and one day I will let him know.  It is almost to the point that if anything, at all occurs, The Wife and I will start to ask ourselves what would “Boss-man” think.  It was during one of these conversations where we started crunching some numbers and were shocked on the outcome.

One day, Boss Man was telling me about buying his first home.  It was in the late 80’s and he was purchasing a home with a $250,000 mortgage and he mentioned that his interest rate was around 10%.  Side note:  that same home on the same block is in the $600,000 range today, even after the correction, but he sold that home for $800,000+ a year before the correction.  I had heard stories from Grandparents, my parents and my in laws about their first home purchase in the early 80s where mortgage rates were hovering near 20%! But since were on the topic I immediately fired up my mortgage calculator:

$250,000 Mortgage at 10% Interest:

250K 10Percent Mortgage

 $400,000 Mortgage at 3.75%:

400k Mortgage

His monthly payment was more than what mine is going to be and it was in 1990 dollars! Wow.

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Michael 10/29/2012 - 10:38 am

I’m with you and even in the last decade or so, the difference is startling. My first mortgage in 1999 was a 30-year fixed at 6.875%, which was ‘great’ that it was under 7%. A couple of years later I re-financed to a 15-year at 5.25% which blew my mind. In 2007 we moved and took a 30-year on the house for 5.875%, again a ‘dip’ as they went below 6% for just a tad. Then, the re-finance last year was at 3.375% for a 15-year which I was floored by. It’s even lower now though I have no immediate plans on refinancing again as it would require pretty big closing costs. At this point, our generation of homeowners will never be willing to pay above 5%.

Evan 11/14/2012 - 4:34 pm

From 5.875 to the 3.375 how much did your payments go up? Did they go down?

Jenna 10/29/2012 - 1:43 pm

This is why I’m thankful I bought my house this year. I have friends that are currently going through the refinance process right now and it looks like a pain.

Evan 11/14/2012 - 4:35 pm

I think it is all about who you work with. Some people may have an easy time with a Refi some have a terrible time while some get a mortgage easily while others do not

Tackling Our Debt 10/29/2012 - 2:44 pm

There is a huge difference between then and now. In 1980 my brother bought a small bungalow and his mortgage interest rate was 13% and he thought he was doing well. At that same time my savings account was earning 22% in interest. I loved that!

Evan 11/14/2012 - 4:36 pm

Holy shit 22?%!? Double your money every 3.2 years!

Lance 10/29/2012 - 7:37 pm

I keep telling people to not worry about paying their mortgages off early because rates will go back up and you’ll wish you still had that low interest loan. It is crazy to think how high interest used to be on homes!

Evan 11/14/2012 - 4:37 pm

Lance you may be right. I can’t imagine rushing to pay this note off (not that I even have it yet)

Kim 10/29/2012 - 10:40 pm

Our first house was purchased in 2000 with an interest rate of 8%. I’d probably die if I had to pay that rate again, as we are at 3.25% now. I guess we’ll have to stay put!

Evan 11/14/2012 - 4:38 pm

At 15 or 30 years? At that rate are you prepaying any of it?

Andrew 11/17/2012 - 8:56 am

That’s an awesome chart that can teach all of us a lesson. By paying down our mortgages now while rates are low we can reap the benefits of higher rates in the future for savings. If you’ve paid off your mortgage and rates go to 5%,7%,10% many, many years from now then you can then invest your cash and earn a spectacular return!

Rates can only go higher from here.


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