History of Residential Mortgage Rates
For the majority of the population, home ownership is accomplished with the aid of a mortgage loan. Residential mortgage rates are the key consideration in choosing a suitable mortgage. Mortgage rates are closely tied to the overall condition of the economy. As a result, mortgage rates are unstable and constantly fluctuating.
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Changing Mortgage Rates
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In the early 1980s, mortgage rates were over 15 percent. Afterward, the residential mortgage rates started downward. In mid-1980s, they dropped below 10 percent; in 1990s--dropped to an average 7 percent; in 2000s--dropped to an average 6 percent. For a chart showing a detailed history of mortgage rates from 1980-2009 go to the erate.com website (See Resources).
Federal Reserve
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The activities of the Federal Reserve have a huge impact on residential mortgage rates. The Fed sets monetary policies, which includes adjusting the discount interest rate up or down to control inflation. When the discount rate (loan rate to banks) is adjusted, it has a corresponding effect on the mortgage interest rate.
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Fannie Mae
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Fannie Mae (Federal National Mortgage Association) buys mortgages from a secondary market, which provides additional funds for residential mortgage loans. The number of purchases by Fannie Mae affects the economic law of supply and demand. The more mortgage money available, the lower the mortgage rate; the less mortgage money available, the higher the mortgage rate.
Fixed Mortgage Rates
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The fixed mortgage rate is popular because of its stability. It remains the same throughout the entire term of the loan. The fixed mortgage rate is most advantageous to homeowners who plan to stay in their homes long term, typically longer than seven years.
Adjustable Mortgage Rates
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The adjustable mortgage rate fluctuates. There is an initial fixed period, ranging from one to seven years, in which the mortgage rate is fixed. Thereafter, the mortgage rate adjusts periodically based on the current market. Typically, adjustable mortgage rates are lower than the fixed rates during the initial period.
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References
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