Don't be surprised when you start seeing 5%
2018 has been the fastest run up in interest rates we have seen in quite some time, with a 30 Year Fixed rate fast approaching the 5% mark for the first time in years I thought it would be a good idea to review the past few decades.
I chose 1987 as a starting point for this example since that is the year I started in the Mortgage Business. As you can see from the chart below the average rate on a 30yr fixed in 1987 was 10.21%. What that chart does not show is the average points paid at that time to get that rate was 2.2 points, so in reality the 0 point rate was significantly higher. For 15 years that average point number was very close to 2 points. It was not until 2001 we saw that average point number drop under 1 point where it has remained until today.
In the 2000's we also saw Loan Level Price Adjustments (or LLPA's for short) come into play. LLPA is a fancy way of saying "Add On" The chart below does not take into account the LLPA's, so very few people actually saw that average number. Fannie and Freddie's best interest rate goes to a client with a 740 credit score and 40% or more as a down payment. There are about 40 LLPAs for credit score, down payment, house type and even loan amount.
For years we have been saying rates will climb, but the economy and world events helped to keep rates low for an extended period of time. Ever since the election in 2016, we have seen rates begin to creep higher, and that pace has increased in 2018. It certainly appears that 5% will become the new normal moving forward and the that brief tease of the 3s and 4s will soon be a distant memory
All the way to the right of the chart above you can see the average of a 30yr fixed rate since 1987 which is about 6.7% with points and w/o LLPAs. If you go back to 1971, when the data was first collected, and did that average- it would be closer to the 8% mark.
So even with the climb in rates, it is still a very affordable period for interest rates. As the economy improves we are likely to see interest rates continued to climb. Inflation is the biggest enemy of a long term rate and the FED will continue to raise rates to keep inflation under control - and near the 2% mark. Now more than ever the Fed has more control of long term rates than it ever has in the past since they have over 1 Trillion Dollars in mortgage back securities on their books, but that is a subject for another blog.
Have a great week!
Robert Rauf
Mortgage Loan Originator NMLS# 248937
http://www.homebridge.com/RobertRauf
or my blog: http://activerain.com/blogs/rrauf
Office: (732)908-4868 Cell (732)740-0175
RRauf@HomeBridge.com
www.RobertRauf.com
Since 1987 I have been helping my clients fulfill their dream of home ownership! HomeBridge Financial Services, Formerly REMN, HomeBridge Financial Services is located at 16 Madison Avenue, Building 2 Suite 2D Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.Homebridge.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood Bayville , Manchester 08757 08733, Manahawkin 08050, Robert Rauf is a Licensed Mortgage Loan Originator in New Jersey.
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