To define the normal rate of mortgages is to consider historical statistics and analyze them. According to E-RATE, the index rates fluctuated throughout the last three decades: the rates during the 1980s varied from 8.86 to 15.59, the rates during the 1990s varied from 6.59 to 9.85, and the rates during this decade of 2000 have varied from 4.88 to 8.17. The average of the lowest index rate, 4.88 in May of 2009, and the highest index rate, 15.57 in June of 1982, is 10.275. Comparatively speaking, with the current annual mortgage rate in 2010 approximating at 5.0175, the rate is considerably low.

Investors and interested participants in real estate may try to predict where the interest rates would go: Will the interest rates stabilize for now? Will the interest rates continue to go down? When will the interest rates go up again? Researching historical numbers and evaluating housing market trends are suitable indicators in establishing conclusive answers. Over the last three decades, mortgage interest rates have steadily decreased: the median rate in the1980’s was 12.225, the median rate in the 1990’s was 8.22, and the median rate in the 2000s so far is 6.525.

According to the U.S. Census Bureau, the average prices of the American home during the commencement of the last three decades were as follows: $47, 200 in 1980, $79,100 in 1990, and $119,600 in 2000. Calculating inflation to the present year of 2010, the average home prices are as follows: $93,400 in 1980, $101,100 in 1990, and $119,600 in 2000. Taking into consideration the current inflation values, buyers who bought homes in 1980 would actually owe the banks more money than would buyers who bought homes in 2000.

This conclusion is derived from taking into account inflation and recalculating the value of the home into present standards. Looking at the statistics from the U.S. Census Bureau and the E-RATE’s history chart, the average price in 1980 is estimated at $93,400, and the median interest rate at the time was about 12.76. Theoretically, if there was no down payment, and the bank loaned the total amount, the buyer would end up owing $1,191,784 in interest. The average price in 2000 is estimated at $119,600, and the median interest rate was around 7.88. Given the same theory, as before, the buyer would waste up owing $942,44 in interest. Because of the interest rates, the buyers in 1980 are obligated to pay more interest than the buyers in 2000–a span of twenty years.

According to FSH Associates Financial Publishers, rates have varied by as much as 4.14% within a course of a single year (1980). As stated, history has shown that rates can jump significantly. With interest surcharges at an all time low, they can unassumingly rise. The best time to obtain a mortgage or refinance one is when interest rates are low, which is now. Interest rates are at the lowest in history–below 6%–and if history does not demonstrate the rates dipping much lower, then the odds are against such chances. With a clear credit background and gigantic income, the homeowner or prospective buyer should take advantage of the opportunity to get a mortgage or refinance one.

References:

E-RATE: Mortgage Rates History 1980 through 2010

http://www.erate.com/mortgage_rates_history.htm

U.S. Consensus Bureau: Historical Census of Housing Tables Home Values

http://www.census.gov/hhes/www/housing/census/historic/values.html

HSH Associates Financial Publishers: “Normal” and Historical Perspectives

http://library.hsh.com/read_article-hsh.asp? row_id=1271