In July, the average interest rate for a 30-year fixed-rate mortgage dropped below 3% for the first time ever. But how big of a deal is a 3% mortgage rate, and how does it affect the average homebuyer or homeowner? To appreciate just how incredible these low rates are for mortgage borrowers, we need to look back through the decades.

Flash back to the year 1981. Ronald Reagan was in his first year as President, the Space Shuttle was making its maiden flight into orbit and songs like Rick Springfield’s “Jessie’s Girl” were topping the music charts. Meanwhile, something else was also topping the charts – mortgage interest rates.

The energy crisis of the ‘70s had brought high inflation to America, and the U.S. Federal Reserve was fighting back against rising prices by hiking their benchmark interest rate. This raised the cost of borrowing for businesses and individuals across America – including mortgage borrowers.

For most of the ‘70s, the average interest rate on a 30-year fixed-rate mortgage had remained between 7% and 9%. Leading into the 80s, however, that average spiked dramatically, culminating in October of 1981 when it hit an eye-popping all-time record of over 18%.

As mortgage rates rose, financing a home became very expensive. To understand just how expensive, take a look at how much these three different mortgage rates* affect the monthly payment on a $200,000 mortgage:

3% interest rate (3.131% annual percentage rate) – as seen in 2020
$843/month payment

9% interest rate (9.188% annual percentage rate) – as seen in 1978
$1,609/month payment

18% interest rate (18.310% annual percentage rate) – as seen in 1981
$3,014/month payment

Imagine paying more than triple your mortgage payment just because you bought a home at an unlucky time!

Thankfully, history has been far kinder to mortgage borrowers in the years since 1981. Rates dropped back under 13% by 1983, and in the decades that followed, they’ve steadily zigzagged lower. Now, in 2020, the homebuyers and homeowners who have snagged mortgage rates under 4% or 3% may not even realize what a fantastic hand history has dealt them.

If you’re interested in buying a new home or refinancing your current one, get in touch for a free mortgage consultation to find out what your new mortgage rate and payment could be.

* Interest rates and annual percentage rates (APRs) are estimates for informational purposes only and are not to be construed as exact quotes. Please contact your Draper and Kramer Mortgage Corp. loan officer for a personalized quote.