What Is the Normal Mortgage Interest Rate

With articles and talking finance people constantly talking about mortgage rates, rising mortgage rates, and highest interest rates in 20 years, you might be wondering what the normal mortgage interest rate actually is. There are actually many different types of mortgages. When people talk about mortgages generally, or generically, they are typically talking about the standard 30-year mortgage with a 20% down payment. As it turns out, mortgage rates aren’t as typical as some people might have you believe.

The 30-Year Fixed Rate Mortgage Average Chart

As someone who has clocked in nearly a half-century here on Earth, the days of 3% and 4% mortgages were crazy town bonkers. To me those interest rates were comically low, and certainly not the normal interest rates for mortgages, but it isn’t that simple.

This chart shows the 30-year fixed rate mortgage average in the United States. As someone who became aware of finance around 1990, you can see where I got the idea that 7% and 8% mortgages were normal. In fact, if you want the average of this graph, it is around 8%. Although, there is no one on this planet who considers the disastrous interest rate of the early 1980s to be normal. Without those five or ten years of abnormally high interest rates, the average of the chart would be much lower than 8%.

Here is the same chart starting in 1990. Looking at this chart, you might think that normal interest rates are closer to 6%. Zoom in to just the 21st century, and you are looking at a normal interest rate between maybe 4% and 5%.

So, what is the normal 30-year fixed mortgage interest rate?

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It turns out there really isn’t one. The 3% environment that seems crackers to me was “normal” for an entire decade. The 8% mortgages that seemed normal to me haven’t existed for almost 25 years. How can that be considered normal?

Even today, with mortgage rates finally back in the 7% “normal” range us 50+ year olds are used to, almost no one expects them to stay here. The Fed Funds rate that supports these higher interest rates is already choking off economic growth. It’s only a matter of time before the Fed has to trim things back a little bit. What will be normal then? 6%? 5%. I guess if the economic history of America is any guide, whatever it is will be the normal rate… until it isn’t.