If you are a regular reader of The Wife’s site, you are painfully acutely aware of the fact that our home sale/search took months. All that seems like a distant past since we recently closed on a fantastic home that I can see us in for years to come.  During our search I would often bounce houses and ideas off a few people whose opinion I really respected.  It was during one these conversations that my mind was absolutely blown.

Do You Even Know What Mortgage Rates were 20 Years Ago?

Everyone even remotely interested in the economy, or, who doesn’t care about the macro economy but is looking for a home themselves, has heard that mortgage loans are at historic lows.  While you can take a look at chart like the one below provided by the St. Louis Federal Reserve and just see that the 30 year conventional mortgage is in a downward slop, I don’t really it think it really illustrates how powerful low rates are.

I think a better way of illustrating the downward treading line is by using a real life example. This is example is from one of those conversations I alluded to above.

  • Person A bought a home using a $250,000 note in 1990.  His rate was 10%.  Yes that is a double digit mortgage rate (a house on that block probably goes for around $600,000 today – after the correction).  
  • Person B bought a home using a $400,000 note in 2013.  As of writing this post the national average rate is 3.70%, however, I used 3.75% just to even bump it up a bit.  

400k-Mortgage
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The 2013 mortgage actually has a lower absolute payment! Then add in the fact that the latter mortgage is being paid back with 2013 dollars where the 1990 mortgage was being paid back with more valuable (due to inflation) dollars!  Hell, if you kept both notes to maturity the interest paid to the bank if kept is nearly double.

Is this a reason to run out and buy a home? No way.  I just found the actual numbers amazing and I convinced The Wife to let me use her blog to illustrate the example.