I was watching Wall Street the other day, and there’s a scene that I had long forgot about. After looking at a gigantic Manhattan condo, the token Hot Girl tells Charlie Sheen, “I know someone who can get you a 10% mortgage!” or words to that effect, as if that was a good thing.
That seems excessive to me, even taking into account that interest rates are still fairly low these days. I got a 30-year fixed just last summer at 6.25%. Were interests rates really so high in the 1980s that 10% was considered a good deal?
In '89 I had to pay an extra point and a half to get a 9.75% rate…and with sterling credit at that. It was psychological, but I just. could. not. sign my name to a mortgage at over 10%. YES I refinanced 3-4 years later when the rates dropped.
Some friends of mine bought a place in 85 or 86, and thier rate was 17-18%, and nothing wrong with thier credit rating.
In 1985 I opened an account at a credit union that paid 9.5% interest on my CHECKING balance.
I had a 12% loan on a house purchased in 1983. Of course the house only cost $40,000 then so my outrageous interest was somewhat offset by lower principle and tax advantages. At the time I bought it I was paying $350 on a rented duplex side.
With a 30 year loan my monthly tax advantage adjusted house payment was around $350. So annual cash flow was a wash and I had the added bonus of paying off some of the principle.
I didn’t re-fi because I sold the house for a $53,000 three years later (part of the appreciated value of the house was no-doubt a reflection of declining interest rates). By then I was able to buy a bigger home, secure a lower interest rate and refi when needed.
Inceasing interest rates can keep home prices down, and supply and demand alos drive long-term interest rates (more so then versus now, since current offshore investment in US bonds does wonders to keep long-term rates down).
When I bought my place in 1981, one of the selling points was the **exceptionally reasonable ** 14.5% fixed rate mortgage I was able to get. I’m glad that puppy is long gone
When I bought my house, it was at a 8.75% mortgage in 1979 (actually, I assumed it; it was granted a couple of years earlier). In the 80s, everyone was jealous of me. And by the time mortgage rates dropped below the 8.75% I was essentially paying principal only, so there was no point in refinancing. Even at 7.00%, I paid less interest money each month that I would have on a new mortgage.
Yeah, I had a assumed VA loan on a townhouse from that era that was, IIRC, 11.75% and considered a good deal. In late 1980, PRIME RATE crested at 21.5%:
Banks advertised 14 and 15% CD rates. People who had old low fixed rate mortgages often got offers from the bank to pay them off at 30 or 40% less than remaining principal. And might decide not to take the offer, because interest on fixed income investments could cover their mortgage interest, and quite a bit more. Assumable mortgages used to be much more common - getting saddled with them during this time was one thing that made lenders quit offering them.
Consider WHY interest was so high…high inflation, as in over 10% percent. Your rent could increase every time your lease came up, and your landlord was eying the inflation rate when determining the new rate. With high interest discouraging buying, the rental market could inflate. Real estate is traditionally a moderate risk hedge against inflation, as you can expect that it will appreciate at some rate + inflation, and your payment is locked in against inflation (ARMs excepted).
When the the rates dropped, all those folks could re-fi the remaining principal, but they didn’t have to pay the prices in the booming real-estate market that resulted when the rates finally did drop.
Yeah, you could get a 12% raise from your employer then , and you were just treading water with rising costs of everything. The “wage/price spiral” in action. Don’t even ASK what kind of pickle senior citizens on fixed incomes were in. OTOH, those were the days in which you were allowed to deduct all interest, not just mortgage interest, on your taxes (a BAD idea, in terms of rational tax policy, but they did it). Interestingly, credit card interest wasn’t that much higher than it is now for many cards. When interest rates dropped, the credit card companies largely stayed high because they could get away with it.
Our first mortgage, in 1985, was a steal: 10% on a 3/1 adjustable (stayed stable for 3 years then floated). I remember one bank we researched didn’t even specify a cap on what the rate could adjust to (needless to say, we took the mortgage with a different one). Our next mortgage, in 1989, was a 3-2-1 buydown (I think that’s the term): it was 8.75 year 1, 9.75 year 2, and 10.75 fr the remainder.
The high rates of the early-to-mid-80s were also a factor in some S&L failures (in addition to mismanagement and fraud); I participated in some closing activities at several on the early 90s. One in particular was losing money because they’d locked in so much CD money (on the order of 3 or 5 billion dollars) at high rates, and then rates fell - so their newer loans were taking in less money than their older CDs were demanding.
This comment makes no sense to me. A huge factor in the thrift failures was a lack of liquidity.
To me that means they’d loaned most of what had been invested, presumably at favorable rates.
Did they just not adjust the rates for CDs fast enough to catch the falling loan rates?
AND I just can’t resist: Seeing as the OP displays such an ignorance (not insulting, just stating fact) of economic history. Curious dopers should research the board of directors, and debtors, of one of the more notorious thrift failures. The name of the institution was Silverado Savings and loan, in Colorado… The board member in question has the initials J.E.B. The name should stand out, even to those under 20. This is GQ, so I won’t try to steer your opinion.
but, of course, you just did that very thing. Keep politics out of GQ, please.
You also should realize that old folks were getting 15% on their CD’s in the early 80’s. The smart ones locked in on a t-bill for 20 years. Most didn’t, as they thought the inflation spiral was forever.
No, the issue was they had made fixed ratel loans at 4% a few years ago that were now bringing in jst chump change for payments. Meanwhile, they now had to pay 10% on CDs to atract any new money to make new loans.
This was before securitization became popular, but even with it today, in high inflation the sale value of a portfolio of low-rate loans will be very small, leading to a huge capital loss.
A lot of the weatlh that many Americans gained from real eastate price appreciation during the high inflation years came more or less directly from the failed bank/S&L stockholders and the taxpayers via the partial bailout that followed.
