Interest rates have a significant impact on your finances whenever you purchase an expensive item, such as a house or car. Interest rates have fluctuated a great deal over the past four decades as the ebb and flow of the economy has a direct impact on the prime interest rate.
History of the Prime Interest Rate
Individuals who have a perfect credit history qualify for what is known as the prime interest rate. Lenders calculate the prime interest rate by taking the federal funds rate and adding 3% to it. Most types of loans use the prime interest rate as their base. The prime interest rate hit an all-time high in 1980 when it was calculated at 21.5%. The all-time low was in 2008 when it was 3.25%.
History of 30-Year Mortgage Interest Rates
When most people start applying for mortgages, they opt for a 30-year mortgage. It takes a long time for them to pay for the house, but the smaller payments are more manageable, and many try to pay a little extra each month. As a general rule, the prime interest rate doesn’t have a huge impact on the amount of interest attached to this type of loan. The interest rate for mortgages is influenced by the bond market.
Historically, the interest rates on 30-year mortgages peaked in 1981 when the rate reached 18.63%. The lowest interest rates for 30-year mortgages was in 2012 when the interest rate was 3.31%.
History of 15-Year Mortgage Interest Rates
The downside to a 15-year mortgage is that the monthly payment is higher than 30-year payments, but there are still some compelling reasons to take out a 15-year mortgage. The first is that you’ll own your property free and clear in a relatively short period of time, provided you can manage the payments. The second big advantage is that the interest rates are a bit lower than the ones connected to 30-year mortgages. Historically, 15-year mortgage interest rates peaked in 1992 at 7.96%. The all-time low was in 2013 when home buyers were able to secure a 15-year interest rate at 2.56%.
Adjustable rate mortgages are the exception to the rule when it comes to mortgages. While 15 and 30-year mortgages are impacted by the bond market, adjustable rate mortgages are influenced by the prime interest rate. With this type of mortgage, lenders use the prime rate to determine the amount of interest attached to the loan. The rate fluctuates each time the Federal fund rates change. However, lenders do set a maximum cap on the interest rate attached to the adjustable rate mortgage.
Historic Interest Rates for Auto Loans
The most popular type of auto loans are 48-month and 60-month loans. The interest rate for 48-month auto loans peaked in 1981 when car buyers had to pay a 17.6% interest rate on their vehicle loan. The lowest interest rate was 4% in 2015. The highest amount of interest car buyers paid on their 60-month car loans was in 2007 when they were charged a whopping 7.82%. The lowest interest rate took place in 2014 and 2017. At the time the prime interest rate for 60-month car loans was 4%.
Why Historical Interest Rates Were Sky High in 1980
The overall economy is why the prime interest rate has fluctuated so much over the past four decades. When the economy is booming, the prime interest rate increases, however, when the economy slips towards a recession, interest rates decrease. This is because the Federal Reserve is trying to encourage people to spend money, which in turn is supposed to stimulate the economy out of a recession.
Sources
https://fred.stlouisfed.org/categories/33058
https://fred.stlouisfed.org/series/PRIME
https://fred.stlouisfed.org/graph/?g=NUh
https://www.thetruthaboutmortgage.com/check-out-these-mortgage-rate-charts-from-the-early-1900s/
http://www.freddiemac.com/pmms/pmms15.html
https://budgeting.thenest.com/prime-rate-vs-mortgage-rate-3744.html