Comparing Current 30 Year Fixed Mortgage Rates with Historical Norms

Current 30-year fixed mortgage rates in 2010 are rather low when held against the past decade. This occurred because the housing crisis in 2007-2009 resulted in a reduction of average interest rates and the national prime interest rate. While rates in 2010 are lower than rates at the beginning of the decade, they do have the potential to go up very quickly.

Why Rates Drop

Rates drop to encourage borrowing. This means lenders offer rate cuts when they do not have many people applying for loans. This cycle typically occurs during a recession. Lenders are aided by the lower rates offered by the Federal Reserve during the recession, which will also drop to promote lending and spending.

Why Rates Rise

Mortgage rates rise when inflation is high, when loans are popular and when the credit market is strong. High inflation typically follows a deep recession, so rates may rise after 2010 to accommodate for this fact. 30 year mortgage rates also tend to be higher than shorter mortgage rates. The lender needs to adjust for the potential for inflation over a much longer time period. The lender is also assuming a greater risk the market will change over 30 years when compared to 7 or 10 year mortgages.

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