Mortgage Loan Statistical Overview: By the Numbers
Most of us want at least THREE things from home-buying experience.
First, we want to FEEL GOOD about it. We want to believe we’ve settled on the right house, negotiated a good price, and locked in a decent interest rate with the right lender. Second, we want to UNDERSTAND IT, at least enough that we can talk about it with others without feeling in over our heads. And third, we want it to BE DONE.
It’s fun shopping for homes for the first 3 or 4 (or for some of you, the first 8 or 10), then it starts to get confusing. Maybe even tedious. None of them are perfect. One has enough room, but it’s in an iffy location. Another one has exactly the look we’d hoped for and it’s a decent neighborhood, but the price is, well… a bit higher than we’d hoped.
Not to mention your friends or colleagues
That’s before you even mention to friends or colleagues that you’re shopping for a home (or thinking about refinancing our existing mortgage). Suddenly, everyone’s an expert on interest rates and real estate slang. They start talking about origination points and ask whether you’re locking in a fixed rate or rolling the dice with an ARM. And of course at least one guy at the office wants to project what the Fed will or won’t do next week so you should hurry up, or wait longer, or look into this completely different sort of financing you’ve never even heard of, and what’s your credit score, by the way?
Honestly, you were hoping more of them would ask you about that nifty deck along the back that you’d like to refinish. At least you’d know what you were talking about then.
I can’t answer all your mortgage questions that are going to come up for you. But I certainly can help by giving you a lot of well documented research and walk you through the numbers related to home purchase loans, refinancing and other types of mortgages. A few basic mortgage loan statistics can help you find your bearings and maybe feel equipped to ask the right questions and make better decisions along the way.
What Is a Mortgage?
Before we talk specific mortgage loan statistics, let’s start with some foundational stuff. What do we mean when we’re talking about mortgages?
At its most basic, a mortgage is the loan you take out to buy your house. The home you’re purchasing is generally used as collateral, meaning that if you fall behind on your repayments, the lending institution has the right to take your house. They don’t really want it, you understand – they’d rather you make the payments – but it’s their leverage to make sure that happens.
Lower that Principal…
Your mortgage payments have two primary elements – the principal and the interest.
The principal is the part that goes to the actual purchase price of the house. The interest is the extra you pay the lending institution for the loan. Your mortgage also usually contains payments towards taxes which come due annually. This part of your payment goes into a separate account until taxes are determined each year. That’s your “escrow account.” Sometimes insurance payments or other related costs are rolled in as well.
What’s The Big Deal With Interest Rates?
Interest rates are one of the most discussed, and even debated, mortgage loan statistics. At times, it may seem like overkill – and maybe it is. The thing is, the difference of a percentage point or two on that credit card in your wallet and that same point or two on a mortgage simply do NOT compare.
Let’s Look at an Example
Assume you owe $5,000 on your credit card and have an interest rate of 17%. You’re pretty determined to pay it off in 24 months, so you buckle down and do some math. To hit your goal, you’ll need to pay at least $256/month. At the end of 24 months, when your balance is $0, you’ll have paid $895 in interest.
Let’s lower that interest rate just 2%. Same $5,000 on your credit card, same 24-month target. At 15% APR, your payments now drop to $251 and at the end of 24 months you’ll have paid $786 in interest. That’s a difference of $5/month and about $109 over the course of two years. That ain’t nothing, but you’re unlikely to lose any sleep over it either way.
Let’s drop that APR one more time to 13%. Now your payments are $238 and you’ll pay a total of $734 in interest. $238 is nearly $20/month less than $256. Depending on how closely you pay attention to such things, that may or may not rock your world. It’s noticeable, but probably not critical.
What About Mortgage Interest Rates?
Now let’s talk interest rates on a mortgage instead. You find a modest little house, just big enough for the family, with that promising deck out back that needs a little work but has plenty of potential. We’ll use round numbers and say you offer $140,000, which the seller accepts. You pay $10,000 down and secure a fixed interest rate of 5% (somewhere around fair to shopping for a mortgage with good credit) on the balance with a standard 30-year loan. (We’re ignoring insurance, taxes, etc., to keep things simple.)
At 5%, your monthly payment will be around $698/month – not bad! That means each calendar year you’re paying around $8,375 for your home. When you make your final payment in the summer of 2049, you’ll have paid a little over $121,000 in interest for a total of around $261,000 for your home (nearly twice the purchase price). Fair enough, and quite doable.
Let’s Keep the Same Numbers Across the Board Except For That Interest Rate
We won’t go so crazy as to drop it 2% right off; let’s try a half-a-percentage point. $130,000 for 30 years at 4.5%. Before you look, how close do you think the numbers will be? Come on, take a guess – and be honest!
Your new monthly payment is about $658/month. That’s a $40/month difference. That’s enough for a nice dinner or two (depending on whether “nice” for you means “they bring you a menu and use cloth napkins!” or “I’ll super-size that and add a turnover!”). Each calendar year you’d be paying $7,904, a difference of $471. In my world, kids, $471 is enough to cover a car payments so we can drive to that nice dinner (with menus and cloth napkins). Your total interest over the life of the loan will be just over $107,000, a roughly $14,000 difference, or about half-a-car. The total you’ll have paid for your house after 30 years will be around $237,000.
Let’s Drop it One More Half-a-percentage Point, Just For Kicks
Rates change, right? Sometimes unexpectedly. That same cute house at 4% means monthly payments of $621/month, or $7448/year. We’re down $77/month and $927/year with a single percentage point drop. That’s a house payment-and-a-half each year. Total interest over the life of the loan is now down to $93,430 and you’ll have paid $223,430 for the house – about $37,500 less than at 5%.
I know that’s a lot of numbers to throw at you, but I thought it might give us some context. I’m not going to suggest that you freak completely out over a fraction of a percentage point here or there, but wanted to help us better understand those who do.
What Are Mortgage Interest Rates These Days?
Now you’re talking serious mortgage loan statistics. Appreciating rates in 2019 means looking briefly at those same rates historically. Rather than give you a long table full of numbers, let me offer a general sampling from recent decades and discuss general trends. It’s easy enough to look up the details if you’re so inclined and of course your credit is a factor for the rates you’ll pay.
According to Freddie Mac, the average annual interest rate on a 30-year fixed mortgage in 1979 was 11.2%. It rose the next few years, temporarily peaking in 1981 at just under 17%, gradually declining after that but not slipping below 10% until 1991. Keep in mind that these are annual averages – it doesn’t mean that everyone who bought a home received this rate, or that it was the same in March as it was in November. Still, these averages are useful anchors for recognizing clear trends in mortgage loan statistics.
After the 1981 Speak
So, after that spike in 1981 and a very slight reduction in 1982, interest rates for most of the 1980s hovered in the low teens and dropped to a shade over 10% in the final few years of the decade. As we moved through the 1990s, rates swung back and forth in the 7% to 9% range, with the high being 9.25% in 1991 and the low at 6.94% in 1998.
In Our 21st Century
For the first decade of the 21st century, interest rates continued to lower overall, dropping below 7% and at times slightly under 6%. The housing bubble burst (aka “the subprime mortgage crisis”) which began in 2006 is an important and fascinating topic (discussed quite effectively by The Balance here and here, in this article on Investopedia, and broken down into an impressive timeline by Wikipedia of all places), but you’d never know it just from looking at average mortgage interest rates. That’s one example of why mortgage loan statistics must be considered as a whole; you can’t always count on a single figure to tell you what’s going on.
Mortgage interest rates continued their gradual descent until hitting 4.69% in 2010, 4.45% in 2011, and – goodness golly gracious! – 3.66% in 2012. Rates have been hovering in the upper 3’s and lower 4’s ever since.
What Are Mortgage Interest Rates Going To Do Next?
There’s much discussion currently about what to expect from interest rates going forward. As I type this, it’s seems bound to 4% with elastic – stretching a bit above for a day or two, then a bit below, but snapping back with great regularity. Here’s the thing though – economics are complicated. Economists in general are far better at explaining why certain things have happened than they are predicting what’s coming next. That’s not a dis on the profession – it’s just the nature of the field.
It Does Matter!
Why does that matter for you as you debate whether or not to refinance your house mortgage or try to figure out where to shop for a mortgage? Because yes, it matters what the average rate is today, and what it might be tomorrow, or next week. It matters what the Fed may or may not do, or what the President may or may not Tweet which could dramatically impact the housing market for better or worse on a given day.
But while you should stay aware and try to educate yourself, as you’re doing right now, you can’t control those things. What you CAN control is what you do for your situation. The biggest question isn’t “What’s the average mortgage interest rate?” or any other detail of mortgage loan statistics. The biggest question is “What kind of mortgage interest rate can I get right now for me in my circumstances?” Which part of these mortgage loan statistics will help me make a better decision about my stuff?
It’s Not Just About Interest Rates – A Brief History of Home Prices
As I’m sure you recall from above, interest rates aren’t the only primary factor in mortgage loan statistics. It shouldn’t be a shock to discover that the price of your home is a major determinant of how much you’ll pay on your residential mortgage.
As with interest rates above, I’m going to try to do more than throw some tables at you, although there are some interesting graphs and such out there if you’re so inclined. Instead, let’s step back and talk big picture home prices – which of course are one of the two biggest factors in any mortgage loan statistics. Here’s one from this source that shows the steady increase in the average sales price of houses in the United States from the early 60’s to current day:
According to figures from another source the National Association of Realtors, average home prices starting in the late 1960’s rose more or less steadily all the way through 2004.
Fifty years ago, in 1969, the average price paid for a home was $21,300. By 1974, it had risen to $32,000.
In 1979, the average home cost $55,700. By 1984, $72,400. By 1989, it was $89,500.
See a Pattern?
In 1994, the median price for a home purchase was $107,200. You’d think five years later as we were all worried about Y2K bringing about the end of civilization that perhaps housing prices would slow, but such was not the case. By the end of 1999, the average home sale was around $133,300.
The rise continued through 2004 when the average hit $185,200. It appeared it would never stop. That appearance, was, arguably, a big part of the problem. You probably remember the so-called “housing bubble burst” around 2006 (if for no other reason than I mentioned it only moments ago). While the trauma of those years wasn’t reflected in average interest rates, it absolutely dominated housing prices.
Prices began plummeting in 2007 and continued for several years. Again, we’re not talking every house in every market at every price point – but on the whole, it was bad. Bad for sellers, and not even that great for buyers, since you can generally only live in one home at a time and a plunging market is a horrible time for “flipping.”
Have Home Prices Recovered Or Not?
Since 2010, average housing prices have risen in fits and starts, peaking (so far) in 2017 at a little over $330,000. But it’s been messy. And, honestly, even before the crash, the numbers weren’t as clear as they at first seem.
Obviously inflation is a major factor. 1969 dollars simply weren’t the same as 2019 dollars. For sales prior to 2000, adjusting for inflation ruins that nice smooth climb I just described, and instead gives us a nice wave back and forth between approximately $150,000 and $175,000 in 2019 dollars. There’s still a gradual overall rise in housing prices, but it makes more sense – like everything else, prices fluctuated, but not radically. Instead, the growth happens in a more traditional “pendulum” pattern.
Even this more gradual rise in mortgage loan statistics is tricky to pin down, however, because the average home size was changing over that same time period. If we figure housing prices by the square foot, it’s not clear they rose in any consistent pattern – not to mention how quickly this complicates the numbers. Plus, if you watch any of those “Love It or List It or Flip It or Screw It” shows on cable, you know that housing prices in, say, Houston, have almost no relation to housing in and around Tulsa. The average size, design, age, and price of a home in San Francisco is inconceivable to the average resident of Tucson.
Remember what I said above about learning from mortgage loan statistics, but not feeling compelled to live by them? This is one more reason why. It’s good to know what’s going on; it’s risky at best to make major decisions based on what’s going to happen next.
Starting in the late 1990s and early 2000s, the rise in housing prices was unmistakable, in real dollars or adjusting for inflation. So is the plummet which began in 2006 and the partial recovery which has been stopping, starting, and generally jerking all over the place since around 2012.
OK, I Give Up. Do I Even Want To Buy (Or Refinance)?
The good news is that all of this other stuff is background. It’s “Previously, on Mortgage Loan Statistics…” It’s presented to inform you, not to dictate your next step. The bad news, I’m afraid, is the same – there are no clear right or wrong answers on this one.
If you’re considering refinancing, there’s no substitute for looking at your options. You’ve probably figured out that I’m a big fan of Investopedia by now (no affiliation), so you might check out their thoughts on this one as well.
If you do decide to buy, you should keep in mind that, while a mortgage has many things in common with any other sort of loan, there are unique features of which you must be aware. First, there are two major steps in the process – pre-approval before you select the home you wish to buy, and final approval once you’ve made an offer on a specific home at a specific price which has been accepted. In fact, it probably wouldn’t hurt for us to step back and do a quick overview of the process from start to finish. You know, just to make sure we’re on the same page.
1. Find the Right Lender and Get Pre-Approved. (That’s right, FIRST.)
Before you start meeting real estate agents or attending open house events. Also, before you check rates on moving companies or do-it-yourself trailers and trucks. Before you do the paperwork to change school districts. Besides, many real estate agents won’t even start showing you homes until this part is done. Did I mention you should do it FIRST?
As you’re shopping for a mortgage lender and your pre-approval, keep in mind that not all lenders are the same. There’s no law saying a lender has to offer everyone the same terms, same interest rates, or same level of service. You’ll also find they move at very different speeds. Traditional lenders can take weeks or months even to get you pre-approved, while alternative lenders – including those you primarily deal with online – tend to move more quickly. They want your business, and they want you to still be telling your friends and co-workers in six months and three years and ten years how happy you were and are with them. That’s how they stay competitive with your local brick-and-mortar bank down the street.
But I digress…
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2. Shop for the Right Home
I’m not going to tell you what that means for you in your situation. I will remind you that you don’t have to use the full amount of your pre-approval. It’s not unheard of for lenders to offer you an maximum that looks pretty good on paper, but isn’t practical once your real life kicks back in and you’re making real payments each month. As with anything else, just because you CAN spend up to a certain limit doesn’t mean you MUST. It doesn’t even mean you SHOULD.
3. Make an Offer. Negotiate as Necessary
This is a large part of why you work with that real estate agent. Hopefully he or she is helping you find just the right home in just the right location, but their real value comes when it’s time to talk numbers. A good realtor can give you a good idea of what’s happening in your market right then – are people buying homes well-under asking price, or is there a bidding war going by the end of the first day on the market for almost anything available? Should you ask for concessions other than price (that washer and dryer look like they’d be hard to move up from the basement and you don’t have either just yet, so maybe…)?
Your realtor is unlikely to tell you exactly what to offer or ask, nor should they. But if they know their job, they know the market and what’s reasonable. They’ll also help you find the gumption to pass on anything not meeting your wants and/or needs.
Sometimes the best thing you can do is walk away and look some more next weekend. The first step towards securing the best mortgage you can is to make sure it’s on the right house. A great interest rate on a place you overpaid for or don’t really like that much is a consolation prize, not a bargain.
4. The Real Paperwork Begins
Once you’ve made an offer that has been accepted and any other details with the seller have been worked out, it’s time to go back to that lender you hopefully love and do the most paperwork you’ve probably ever done in your life. Just keep reminding yourself that you’re getting that deck in the back that you really wanted, and that your wife likes the mudroom.
If you want to know more about this part of the process, we talked about it in greater detail not so long ago. If you still have questions, feel free to shop mortgage loans here and we’ll see if we can hook you up with a lender that may be able to help you out.
A Very Wise Conclusion
Because you’ve read this far, however, I’ll offer a few bits of wisdom and insight suggested by these particular mortgage loan statistics. Obviously, I think they’re worth considering or I wouldn’t bother – but what you do with them is up to you. That’s the thing about big decisions, whether you’re buying a house, getting married, having kids, changing jobs, moving out of state, or whatever… we gather information and make the best call we can. After that, all we can do is make the best of what comes and not blame ourselves for not always predicting the future perfectly.
Wisdom #1: The value of your home on paper is secondary to the value of your home as the place where you and your family live.
Once you’ve committed to a mortgage, the goal is to pay it on time every month and take care of your new home. Watching for signs our home has gone up or down in value really only impacts our property taxes unless we plan on selling, so don’t get too hung up on paper value if you’re not planning on turning your home into paper money. Go refinish that deck in the back instead – not to raise the resale value, but because you want to sit out there and feel good about it.
Wisdom #2: Keep in mind that when mortgage interest rates are low, housing prices tend to remain high.
Like everything else in mortgage loan statistics, this varies from market to market and even month to month, but it makes sense. Most of us base what we can afford on monthly payments, and we’re more likely to take on larger debt if the interest rate is good, keeping those payments under control (see above). Basic supply and demand, then, says if we’ll pay more for housing, housing prices will go up.
Wisdom #3: Talk it through with a trusted friend.
Don’t ask them what to do. Tell them you need help. Most people love to be needed, especially when it doesn’t cost them money or involve lifting anything. Talk through your thinking process with them and let them ask questions or make observations – “reflective listening,” as it were. This is about you clarifying your thinking; not them injecting theirs.
Wisdom #4: You don’t know what’s available to you until you ask or apply.
Mortgage loan statistics may be enlightening, but they’re not specific to you. Look into mortgage options, and don’t try just one place; that’s almost recklessly irresponsible. Talk to your local bank or credit union. Explore alternative lenders and their track records. And remember that it’s the 21st century – there are online lenders who want to earn your business. They don’t stay in business if you don’t like their terms or the level of their service. While you’re scrambling to win over the hearts and minds of the local mega-bank, online lenders are working to win over you.
Personally, I like that dynamic much better. That is, in fact, why we do this. No fees, no gotchas – just connections.
Wisdom #5: Learn from the wrinkles, but don’t get bogged down in them.
When you’re done, move forward. Don’t second-guess yourself all day long. It’s rare that there’s not SOMETHING we wish we could redo with the benefit of hindsight. That doesn’t mean we did badly, just that in the rearview mirror every little wrinkle seems so much more obvious.
And now that THAT’S done, maybe you should get started on refinishing that deck. Compared to this, it will probably seem like a breeze.
Blaine Koehn is a former small business manager, long-time educator, and seasoned consultant. He’s worked in both the public and private sectors while riding the ups-and-downs of self-employment and independent contracting for nearly two decades. His self-published resources have been utilized by thousands of educators as he’s shared his experiences and ideas in workshops across the Midwest. Blaine writes about money management and decision-making for those new to the world of finance or anyone simply sorting through their fiscal options in complicated times.