Understanding the background of mortgage rates can help paint an overall picture of what type of mortgage is the right choice for you. At its most basic form, a mortgage is a security interest on property granted to a lender. A mortgage loan is money borrowed from the lender that is secured by the tangible property. The mortgage rate is the percentage of the loan that consists of finance fees, or the cost to borrow the money to finance your home.
As much as mortgages are part of our lives today, they go back a long way. In fact, they began as early as 12th century England. The basics driving need for the mortgage lending system has never really changed; the high cost of real estate means that most people are unable to purchase property outright. As a result, the only way for most people to buy property is to borrow money.
English common law originally was designed to protect the creditor and not the debtor. The primary protection provided to the creditor was an interest in the debtor’s property. If the debt was not paid, the creditor could sell the property as a way to recoup its losses.
Mortgages in America
As people in the UK began to settle in America the early mortgage system came with them. The practice grew steadily until the mid to late 19th century.
By the 1900’s mortgages were attainable and widely used. However, they still could be tough to obtain. Often, a 50% down payment was required and a five-year mortgage was structured. The way it worked was that the mortgage rate interest would be paid over five years. After that, the full original balance of the property still remained to be paid. It would have to be refinanced or paid in full, often trapping consumers into making nothing but mortgage interest payments for years at a time.
Mortgage loans stayed that way until the Great Depression.
Consumer Friendly Mortgage Rates
With the advent of tighter control over lending, mortgage loans and rates were re-structured to become available to the average American. This happened with the help of two new institutions:
The Federal Housing Administration (FHA) was created to insure lenders against losses from defaults. With the risk of default mitigated in this manner, lenders were more willing to loan money to consumers and businesses. This change in practice ushered in the concept of the 30-year fixed-rate mortgage.
The Federal National Mortgage Association (FNMA) or Fannie Mae in turn bought the FHA loans, bundled them and sold them as securities in the financial markets.
This all resulted in more efficient mortgage lending practices, more uniform mortgage rates and similar underwriting guidelines. Ultimately this meant that the average consumer could expect that they would be treated similarly and receive about the same rates and loan maximums from one lender to the next.
The Impact of Inflation on Mortgage Rates
In the late 1970s and 1980s home mortgage rates (which had typically hovered at 5% to 8%) suddenly skyrocketed up to 15%. One of the primary causes for this was the runaway inflation that occurred in the country at the time. The inflation rate has always been a main factor in a mortgage rate. So, when inflation ran at 7%, mortgage lenders had to match that and then some in order to make a profit.
Once inflation was brought back under the control by the Federal Reserve, mortgage rates decreased to more affordable levels, where they have remained for the last 30 years.
Today’s Mortgage Rates on Different Loans are at Exceptionally Low Rates
Mortgages, refinances, equity lines of credit and most other types of loans feature not only different structures and benefits, but wildly different rates as well. A comparison of loan products can help you determine which one is right for you. Some loan products include:
In order to find out what type of mortgage rate you qualify for, fill out our easy online application form now, or get an immediate quote and more information by calling us at: (724) 934-2800. We can help you make the right choice for your unique circumstances and will work on your behalf to get you the best mortgage rate possible. Call us now to find out for yourself.