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Comparing the Increase in Payments on Your Mortgage, Car Loan, and More Over the Past 5 Years

Benedek / Getty Images

If you’re like most Americans, you have some type of debt, even if it’s considered “good” debt like a home mortgage. In fact, according to the Federal Reserve’s Survey of Consumer Finances, 77% of American households have some type of debt. While low-interest debt may be easy to manage, when rates spike, borrowing costs can wreak havoc on household budgets.

While rates were low during the coronavirus pandemic, they skyrocketed to their highest levels in decades over the last few years — something you’ve likely noticed if you bought a house or car. But just how much have rates gone up and how much have monthly payments increased? Even more importantly, are rates expected to keep trending higher? Read on to learn more.

Mortgage Rates

Although mortgage rates are considered to be fairly stable, they actually fluctuate quite a bit over time. If you bought a home in 1981, for example, you might have paid 16% or more on your mortgage, according to The Mortgage Reports — a rate that seems nearly impossible to believe, especially for homebuyers in the past five years.

In 2020, for example, the coronavirus pandemic sent the world into a tailspin and mortgage rates fell dramatically. By January 2021, the rate for a 30-year fixed mortgage reached its all-time low of 2.65%, a shocking figure for those used to mortgage rates in the 1980s.

As the pandemic fell into the rear-view mirror, however, the flood of stimulus payments and pent-up demand sent mortgage rates skyrocketing, hitting 7.79% in October 2023. As of August 2024, rates have stabilized and are hovering around the 6.5% to 7% level.

Looking back five years to 2019, the average mortgage rate was 3.94%. This puts market rates today roughly 3% higher. Here’s what that translates to in terms of dollars and cents.

If you took out a $300,000, 30-year fixed-rate mortgage at 3.94%, your monthly payment would be $1,421.89. Over the course of the mortgage, you’d end up paying $211,879.72 in interest, as calculated by MortgageCalculator.com. But if your rate was 6.94%, as you might face during current market conditions, your monthly payment would jump to $1,983.83, a nearly 40% jump. Even worse, over the life of your 30-year loan, you’d pay a whopping $414,180.03 in interest. That amounts to more than $200,000 in extra interest alone.

Car Loan Rates

Just as mortgage rates shot up after the pandemic, so too did auto loan rates. In 2019, 60-month auto loan rates on new vehicles averaged about 4.7%. However, as of July 2024, rates were at 7.89%, an increase of 68%, according to Statistica. For a $25,000 car loan, the difference is stark. In 2019, you could expect a monthly payment of $468.35. Total interest over the life of that loan would amount to $3,101.15.

At a rate of 7.89%, however, that payment would be $505.59. While not a huge jump in monthly cost, the amount of interest you’d pay on that loan would jump considerably, to $5,335.69. That’s more than $2,200 in additional interest, an increase of an incredible 72%.

Personal Loan Rates

Personal loan rates were on a steady decline from before the pandemic until May 2022, when the Fed began hiking interest rates. After falling from over 14% for 24-month loans in 1999/2000 to 8.73% in May 2022, rates reversed quickly and dramatically and sit at 12.38% as of Aug. 2024. Unlike many other types of loans, however, even at 12.38%, rates are a touch below where they stood five years ago.

The Future of Interest Rates

In recent weeks, market interest rates have been trending down. This is in response to comments from the Federal Reserve that it is leaning towards lowering rates, perhaps as early as September. As inflation spiked coming out of the pandemic, the Fed had to dramatically increase rates in order to contain its rise.

But since inflation has been steadily dropping over the past year or so, the need for higher rates has vanished. Now, the Fed is in the position where it must lower rates to prevent the economy from tipping into a recession. As a result, rates are expected to continue trending lower in 2024 and 2025 and perhaps beyond.

In conclusion, the rise in interest rates over the past few years has had a significant impact on household budgets, particularly for those with mortgages, car loans, and personal loans. As rates continue to fluctuate, it’s important for consumers to stay informed and be prepared for potential changes in borrowing costs.

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