Finance News

Historically, home loan mortgage rates in the U.S. paint a clear picture of the constant changes in the economy, inflation, and government policies over time. Here’s a peek at some of the historical highlights: <h2>1. 1930s: Creation of the Modern Mortgage System-Mortgage Overhaul</h2><ul><li>Prior to the 1930s, home loans were short-term and risky. The Great Depression led to mortgage defaults across the board, prompting the U.S. government to found institutions like the Federal Housing Administration (FHA) and Fannie Mae to stabilize the housing market. </li><li>The introduction of the 30-year fixed-rate mortgage made home loans more accessible, and mortgage rates were relatively low (around 5-6%). Brilliant minds made it happen.</li></ul> <h2>2. 1950s-1960s: Stable and Moderate Rates</h2>During the post-World War II economic boom, mortgage rates were steady, ranging between 4%-6%. The economy grew, and so did the suburban housing market, fueled by the GI Bill and FHA loans. <h2>3. 1970s: Inflationary Pressures</h2><ul><li>The U.S. experienced rising inflation in the 1970s due to oil prices and loose monetary policies. By the end of the decade, mortgage rates climbed sharply, averaging around 9-10%.</li><li>The government introduced adjustable-rate mortgages (ARMs) to offer more flexibility on home loans as rates began to rise.</li></ul> <h2>4. 1980s: Record-High Mortgage Rates</h2><ul><li>In response to extreme inflation in the late 1970s and early 1980s, the Federal Reserve, under Paul Volcker, raised interest rates dramatically to control inflation.</li><li>Mortgage rates peaked in 1981 at an all-time high of around 18-19%, making it difficult for many people to afford homes. Can you imagine taking out a home loan at this time?</li></ul> <h2>5. 1990s: Falling Rates with Economic Growth</h2><ul><li>After inflation was brought under control, mortgage rates began to decline steadily, settling in the 7-9% range throughout the 1990s and kicking off a period of opportunity.</li><li>Economic growth, especially during the tech boom, helped maintain lower rates compared to the highs of the 1980s. </li></ul> <h2>6. 2000s: Boom, Bust, and Financial Crisis</h2><ul><li>In the early 2000s, mortgage rates dropped to historically low levels, around 5-6%, helping fuel the housing boom. Subprime lending also became widespread, offering mortgages to borrowers with poor credit. </li><li>The 2008 financial crisis was largely due to the collapse of the housing bubble. As a result, mortgage rates briefly rose before falling as the Federal Reserve cut rates to stimulate the economy. If&nbsp;you lived it, you know.</li></ul> <h2>7. 2010s: Post-Recession Low Rates</h2><ul><li>Following the recession, mortgage rates remained low, hovering between 3% and 5% for most of the decade as the Federal Reserve kept interest rates low to encourage economic recovery. It worked and worked extremely well.</li><li>By the late 2010s, the U.S. housing market was growing again, but rates remained historically low.&nbsp;</li></ul> <h2>8. 2020s: Pandemic and Rate Volatility</h2><ul><li>At the onset of the COVID-19 pandemic, the Federal Reserve cut interest rates to near zero, pushing mortgage rates to historic lows, with 30-year fixed rates falling below 3% in 2020 and 2021. Cheap money hit the streets and once again it cranked up growth.</li><li>In 2022 and 2023, rising inflation prompted the Federal Reserve to hike interest rates, causing mortgage rates to climb back up, with 30-year fixed rates surpassing 7%. First-time home borrowers were hit especially hard, pinching them out of the market.</li></ul> <h2>Influencing Factors:</h2><ul><li>Federal Reserve Policies: The Fed’s control over the federal funds rate significantly impacts mortgage rates. Lower rates typically reduce mortgage costs, while higher rates increase them.</li><li>Inflation: High inflation usually leads to higher mortgage rates as lenders demand higher returns to offset the eroding value of money.</li><li>Global Events: Wars, pandemics, and economic crises can cause sudden fluctuations in rates, either pushing them higher (due to uncertainty) or lower (due to stimulus measures).</li></ul> <h2>Conclusion:</h2>Mortgage rates have seen significant fluctuations over time, largely driven by inflation, economic cycles, and Federal Reserve policies. Rates have ranged from highs of nearly 19% in the early 1980s to historic lows below 3% during the COVID-19 pandemic. Homebuyers today face rising rates in response to inflationary pressures, but rates remain well below their historical highs. With that, what will the market look like tomorrow?

What's old may be new again, and mortgage rates are no exception. Let's take a look at the history of mortgage rates to better understand what they might look like tomorrow.

Mortgage Rates: Looking Back (Then Forward)

Mortgage Rates Then and Now

The traditional education system has long been revered as the cornerstone of preparing the next generation for success.&nbsp;However, when it comes to essential real-world skills like financial literacy and emotional intelligence, our schools are falling short.&nbsp; As a result, many children graduate without understanding how to manage their money, make smart investment decisions, or handle the emotional challenges life throws at them.&nbsp;These gaps in education can prevent them from reaching their full potential, both personally and financially. Let’s explore why the system is failing and what we, as parents, can do to break free from this outdated model to set our kids up for real-world success and, ultimately, the creation of generational wealth. <h2>How the Education System Fails Us</h2> <h3>1. Lack of Financial Literacy Education</h3>Most schools don’t teach financial literacy beyond basic economics, leaving students unprepared for managing personal finances.&nbsp;They learn how to solve for “x” in math class but don’t learn how to balance a budget, invest, or understand taxes.&nbsp; This absence of financial education leads to poor financial decisions later in life, as adults often find themselves in debt or living paycheck to paycheck because they never learned how to build wealth. <h3>2. Emotional Intelligence is Overlooked</h3>While emotional intelligence (EQ) is critical for navigating relationships, managing stress, and leading others, schools place almost no emphasis on teaching it.&nbsp; Without EQ, children may struggle with mental health challenges, fail to handle conflicts maturely, and miss opportunities for personal and professional growth. <h3>3. Standardized Curriculum Doesn’t Reflect Real-World Needs</h3>The one-size-fits-all approach of the traditional curriculum focuses on standardized testing, rather than helping kids develop real-life problem-solving skills.&nbsp; This leads to a system where students are trained to memorize and regurgitate information, instead of thinking critically or creatively about how to solve real-world challenges like building a business or investing for the future. <h3>4. Lack of Focus on Leadership Skills</h3>The ability to lead and make decisive choices is essential in both personal and professional life, but leadership skills are rarely taught in schools.&nbsp; Most kids aren’t given the chance to practice leadership or decision-making, which leaves them unprepared to take control of their own lives or influence others in positive ways. <h3>5. No Preparation for the "Rat Race"</h3>Kids are often taught that success means getting a good job after college, but they’re never warned about the dangers of getting stuck in the “rat race”—working long hours without ever achieving financial freedom.&nbsp; Without the knowledge of how to build passive income or escape the 9-to-5 grind, they’ll likely fall into the same traps that generations before them have faced. <h2>Ways to Break Free from the System and Educate Your Kids with Real-Life Skills</h2> <h3>1. Teach Financial Literacy at Home&nbsp;</h3>You don’t have to wait for schools to teach your kids about money. Start educating them at home by explaining budgeting, saving, investing, and the importance of credit.&nbsp; Give them practical lessons by letting them handle small amounts of money, open a savings account, and track their spending. Teach them how compound interest works and introduce the idea of passive income early on. <h3>2. Introduce Emotional Intelligence (EQ) Training</h3>Emotional intelligence is crucial for success in both personal and professional life. Help your kids develop self-awareness, self-regulation, and empathy by having open discussions about emotions, relationships, and how to handle difficult situations.&nbsp; Role-play challenging scenarios to teach them how to respond thoughtfully instead of reactively. Kids with high EQ will be better leaders, better decision-makers, and better able to handle the stresses of life. <h3>3. Focus on Leadership and Decision-Making&nbsp;</h3>Give your kids opportunities to practice leadership at home and in their community. Allow them to make decisions—big or small—and learn from their successes and mistakes.&nbsp; Encourage them to lead family activities, take part in team sports, or volunteer for leadership roles in extracurricular activities.&nbsp;Real-life leadership experience will teach them to make confident, well-informed decisions that can lead to personal and financial success. <h3>4. Instill the Mindset of Financial Independence&nbsp;</h3>From an early age, teach your kids the importance of building passive income and investing for the long term.&nbsp; Show them that working for someone else doesn’t have to be their only option and that financial independence can be achieved by investing in assets that grow over time.&nbsp;Introduce them to the concept of cash flow engineering and how they can use their money to work for them, rather than working for money their whole life. <h2>Conclusion</h2> Breaking free from the limitations of the traditional education system means taking responsibility for teaching your kids the real-life skills they’ll need for future success.&nbsp;Financial literacy, emotional intelligence, and leadership aren’t optional—they’re essential for achieving and maintaining generational wealth.&nbsp; By implementing these teachings at home, you’re giving your children a massive advantage that will benefit them for the rest of their lives. For more tips on the strategies and habits of the top 1% of the wealthy, subscribe to <a href="https://basecaseandbuild.substack.com/" rel="noopener noreferrer" target="_blank">Generational Wealth Builders</a>.

Most children graduate from the education system with little to no financial literacy or skills in managing their money. Here's how you can fill in the gaps at home.

The Education System Needs to Be Fixed

Why the Current Education System Fails Our Kids

Is there a positive side to our inflation rates in 2024? Yes, there is (trust me). As you probably remember from high school econ, inflation is the general rise in the prices of goods and services over time. When inflation occurs, the purchasing power of money decreases, meaning the same amount of money buys fewer goods or services than before.&nbsp; Inflation is measured by the Consumer Price Index (CPI), which tracks the average price of goods that typical households purchase. Moderate inflation is normal in a growing economy, but when inflation gets too high, it can mess with economic stability. For you, inflation means that daily expenses—such as groceries, gas, or rent—get more expensive (I’m guessing you’ve noticed). As I’m sure you also know, your income may not increase at the same rate. This can make budgeting harder, as your income stretches less to cover basic needs. Over time, if wages don't keep up with inflation, your overall standard of living could decrease. Inflation can also make saving money tougher. If you're saving money in a low-interest savings account, inflation might outpace the interest you earn.&nbsp;For instance, if inflation is at 3% and your savings account earns 1% interest, the value of your money is basically shrinking by 2% each year. That means you’re going to want to consider investments that offer returns higher than the inflation rate, like stocks or inflation-linked bonds. On the positive side, if you have fixed-rate debt,<a href="https://thesuccessfinder.com/lifestyle/the-first-time-home-buyer-s-playbook" rel="noopener noreferrer" target="_blank"> like a mortgage</a>, inflation can actually help you. As prices and wages increase, the real value of your debt decreases because you're repaying the loan with money that is worth less than when you first borrowed it.&nbsp; That said, be careful. High inflation can lead to rising interest rates, making it more expensive to borrow money in the future.

When are high inflation rates a good thing? You'd be surprised. Learn about the positive side of our high inflation rates here in 2024.

The Bright Side of Inflation Rates (2024)

The Good News About Inflation Rates

Searching for a mortgage involves planning, comparison, and understanding of the different loan programs available. It may feel exhausting, but the time investment is worth it. Here are the best tips to follow when shopping for a mortgage loan: <h2>1.&nbsp;Know Your Credit Score</h2><ul><li>Before applying, check your credit score. A higher score usually qualifies you for better interest rates.</li></ul> <ul><li>A score of 620 or higher is best, though some lenders offer options for lower scores (with higher interest rates).&nbsp;</li></ul> <h2>2. Determine Your Budget</h2><ul><li>Decide how much you can afford for a mortgage. This includes understanding your debt-to-income (DTI) ratio (lenders often prefer a DTI of 36% or lower). This means how much of your income goes out to pay your bills.</li></ul> <ul><li>Factor in the down payment, monthly payments, taxes, insurance, home association fees, and closing costs when setting a budget.</li></ul> <h2>3. Get Pre-approved</h2><ul><li>Pre-approval gives you a clear idea of how much a <a href="https://thesuccessfinder.com/lifestyle/the-first-time-home-buyer-s-playbook" rel="noopener noreferrer" target="_blank">lender is willing to loan you</a>, as well as the interest rate and loan terms. This strengthens your negotiating position when house shopping for a home. It’s a time saver as well.</li></ul> <ul><li>Be ready to submit financial documents such as tax returns, pay stubs, and bank statements - this is non-disclosable.&nbsp;</li></ul> <h2>4. Compare Mortgage Rates</h2><ul><li>Shop around by comparing rates from different lenders, including banks, credit unions, and online mortgage lenders.</li></ul> <ul><li>Use online rate comparison tools to check current interest rates for different loan types (fixed vs. adjustable-rate mortgages).</li></ul> <ul><li>Get a trusted lender referral that’s local in your market.</li></ul> <h2>5. Understand Loan Types</h2>Familiarize yourself with the various types of loans, such as:<ul><li>Fixed-rate mortgages: These offer stable payments over the life of the loan.</li></ul> <ul><li>Adjustable-rate mortgages (ARMs): ARMs start with lower interest rates that can adjust over time. Read the fine print.</li></ul> <ul><li>FHA, VA, or USDA loans: These are government-backed loans with specific eligibility requirements, usually for first-time buyers or those with lower credit scores. They are outstanding loan options that will need review for your individual needs.</li></ul> <h2>6. Check for Fees and Closing Costs</h2><ul><li>When comparing loans, don't just focus on interest rates—factor in closing costs, which can range from 2% to 6% of the home loan amount. These include application fees, appraisal fees, title insurance, and more.</li></ul> <ul><li>Ask for a Loan Estimate from each lender to see the breakdown of all fees. Laws require lenders to provide this.</li></ul> <h2>7. Terms are negotiable</h2>Some fees, not all, are negotiable, like origination fees or points, and you may be able to get a lower interest rate by negotiating or by paying points up front (called "buying down the rate").&nbsp; <h2>8. Consider Different Lenders Very Carefully</h2>Explore options from multiple lenders such as: <ul><li>Traditional banks: Often offer competitive rates but may have stricter requirements.</li></ul> <ul><li>Credit unions: May offer lower rates and fees for members.</li></ul> <ul><li>Mortgage brokers: Can shop around for you, finding the best deal from multiple lenders.</li></ul> <ul><li>Online lenders: Often have lower overhead and may offer lower rates or more flexible options.</li></ul> <ul><li>Local lenders: You can meet them in person.</li></ul> <h2>9. Lock in Your Rate</h2>Once you find a rate you're happy with, lock it in to prevent it from increasing before closing. Rate locks typically last from 30 to 60 days. Caution: Rates do move up or down over time. <h2>10. Read the Fine Print and Ask Questions</h2>Carefully read all terms and conditions of your loan offer, paying close attention to prepayment penalties, balloon payments, and other conditions. By taking the time to compare different lenders, rates, and loan options, you can find the best mortgage that fits your financial situation and long-term goals. It’s essential to understand not only the interest rate but also the total cost of the loan, including fees and terms.

Don't be unprepared when doing your home loan shopping. Run through this checklist to make sure you're getting the best fit and most favorable rates.

Do Home Loan Shopping Like a Pro

Home Loan Shopping Shortcuts to Know

Being a first-time home buyer can feel like solving a math equation where you don’t have all the variables.&nbsp; Never fear, though. Once you understand how lenders evaluate you for eligibility, the rest is a breeze. Let’s get into it. Mortgage lenders determine home affordability using several non-negotiable key factors, all of which assess whether a borrower can afford their monthly mortgage payments and associated costs. The main considerations include: <h2>1. Income and Employment Stability</h2><ul><li>Lenders look at a borrower’s gross monthly income to calculate how much they can afford to spend on housing. They typically prefer that no more than 28%–30% of gross income goes toward monthly housing payments.</li><li>They also check employment stability for consistent income, pay stubs, tax returns, and employment history.</li></ul> <h2>2. Debt-to-Income (DTI) Ratio</h2><ul><li>The DTI ratio compares a borrower's monthly debt payments (credit cards, loans, etc.) to their gross monthly income. Mortgage lenders aim for a DTI ratio of 36% or lower, with a cap of 43% in a lot of cases.</li><li>There are two types of DTI:</li></ul> <ul><li class="ql-indent-1">Front-end DTI: This means housing costs (mortgage, taxes, insurance) as a percentage of income.</li><li class="ql-indent-1">Back-end DTI: This includes all monthly debts (housing, credit cards, loans) as a percentage of income.</li></ul> <h2>3. Credit Score</h2><ul><li>Lenders look into credit scores to determine a borrower’s creditworthiness. Higher scores often lead to better loan terms and lower interest rates. A score of 620 or higher is needed to qualify for most loans, but higher scores mean better rates (that’s 700+).</li></ul> <h2>4. Down Payment</h2><ul><li>The size of the down payment impacts how much money needs to be borrowed, directly affecting monthly payments and overall affordability. A larger down payment lowers the loan-to-value (LTV) ratio, improving your chances of approval and lowering mortgage insurance costs in some cases.</li></ul> <h2>5. Interest Rates</h2><ul><li>Lenders also decide what interest rate the borrower qualifies for based on their creditworthiness and the current market rates. Lower interest rates mean lower monthly payments, improving affordability.</li></ul> <h2>6. Loan Term</h2><ul><li>The loan term (15, 20, or 30 years) also factors into affordability. Shorter terms have higher monthly payments but save on interest over the life of the loan, while longer terms lower monthly payments but increase total interest paid.</li></ul> <h2>7. Other Housing Expenses</h2><ul><li>Lenders consider other homeownership costs, including:</li><li class="ql-indent-1">Property taxes</li><li class="ql-indent-1">Homeowners insurance</li><li class="ql-indent-1">Private mortgage insurance (PMI) if the down payment is under 20%.</li><li class="ql-indent-1">HOA fees (if applicable).</li></ul> <h2>8. Reserve Funds (Cash Reserves)</h2><ul><li>Some lenders may require borrowers to have cash reserves, typically equal to a few months of mortgage payments, to ensure they can cover the payments in case of emergencies.</li></ul> These factors help lenders assess whether the borrower has the financial ability to afford a home without overstretching their budget.

Becoming a home buyer can mean navigating confusing lender requirements. Let's pull back the curtain on some important lending factors.

Finance

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