As you start
shopping for a home loan, your first question of
each lender will probably be "What's your
interest rate? How much are you charging?"
Interest rates are usually expressed as an
annual percentage of the amount borrowed. If
you borrowed $120,000 at 10% interest, you'd owe
interest of $12,000 for the first year. With
most mortgage plans you'd pay it at the rate of
$1,000 a month. You would also send in something
each month to reduce the principal debt you owe
- and the next month you'd owe a bit less
interest.
When your grandparents bought their home
(putting at least half the purchase price down,
by the way), their interest rate was probably
around 4 or 5%. Rates stayed the same for years
at a time. Then in the years following World War
II, things became more turbulent. As economic
changes speeded up, rates began to change
several times a year. By the l980s, lenders were
setting new rates on mortgage loans as often as
once a week - and they still do today. When
inflation hit a high in the '80s, some mortgage
loans carried interest rates as high as 17% -
and those who absolutely needed to buy, paid
that much.
Rates dropped gradually through the 1990s, and
by 1998 had reached their lowest rates in
decades. Heading toward the millennium, home
buyers appear to have the most favorable
conditions for mortgage borrowing since their
grandparents' days - and without 50% down
payments either.
