You’ll often hear the term “Historically-low interest rates” tossed around in news reports, real estate advertisements, and yes, even mortgage blogs. But the supposed historical data on mortgage interest rates usually doesn’t go back any further than the early 1970s, and sometimes only to the 1990s. How is that ‘historical?’
So we decided to buck this trend of calling the last thirty years ‘history’ by digging deep into the ancient origins of interest rates, and bringing you an accurate summary of the rate to borrow money over time.
From Mesopotamia in 3000 BC to the Code of Hammurabi in Babylon to the 1700s when England’s colony became the United States of America, we bring you interest rates throughout human civilization.
What will we find? Well, when we talk about “historically low interest rates,” these days (and in recent years,) it does pass the test of time!
3000 BC
In Mesopotamia, metals were first used as money depending on their weight – the first crude coins. Temples served as banks and the places where the rich lent money out. Based on the documented rate of 1 shekel per mina per month, we can surmise that interest rates were around 20%.
2400 BC
Around this time, we also know that interest rates in ancient India were around 24%, according to the Laws of Manu.
1600 BC
We turn to ancient Babylon in the Middle East, where the Code of Hammurabi was the rule of the land. According to that code, earlier Sumerian customs of charging approximately 20% interest rates were adopted, although evidence shows that rates did vary from 10-25%.
600 BC
Interest rates were around 16% in Ancient Greece, leading to a debt crisis where people who could not pay were forced into servitude.
549 BC
The Age of Interest Rate Enlightenment came in the land of Socrates, Plato, and Aristotle with Solon’s reforms I 549 BC. After that, ancient Greece commonly saw interest rates of 10% at its money-lending temples.
The widespread use of credit also started in Greece in the 5th century BC.
540 BC
With the Persian conquest when King Cyrus overthrew Babylon, interest rates jumped to a choking 40% or higher!
443 BC
Rome’s Twelve Tablets modernized lending laws, mandating that no more than 1 oz/lb/year could be charged in interest, equating to about 8.33% interest.
300-200 BC
However, both the ancient Greek and Roman empires saw their share of financial volatility that sent rates sinking or soaring. For instance, when Rome expanded their economy with plenty of silver and gold, rates plunged to 5% or lower (100 AD). But in the 300s, Rome also suffered inflation and financial crisis that brought rates to 15% or higher.
1 AD
But by the dawn of the modern age in 1 AD, Julius Caesar and had stabilized and grown Rome’s prosperity to the point where interest rates were as low as 4%.
However, the state was soon in decline, and a credit crisis brought rates higher, from 5% in 100 AD to 15% or higher in 300 AD.
325 AD
Under Constantine’s rule of the Byzantine Empire, the ceiling on interest rates was set at 12.5%
528 AD
Later on, the Code of Justinian set interest in the Byzantine Empire at no more than 8%.
1150 AD
Thanks to increasing trade, the vibrant Italian cities of Venice, Florence, and Rome saw plenty of expansion – but at the cost of around 20% interest rates, as many explorers and traders never returned to repay their debts!
1490s
Around the time when Leonardo da Vinci was painting his epic “The Last Supper in Milan,” interest rates in Venice, Italy were an extremely healthy 6.25% – some of the lowest ever recorded at that time.
1570s
When Holland just started their Eighty Years’ War, interest rates were a modest 8.13%.
1700s
As the British Empire grew unchecked around the world, Mother England experienced an embarrassment of riches – including interest rates below 10% (9.92% in the 17o0 and as low as 2.31% by the 1730s).
1810
In the newly formed United State of America, interest rates were a stable and modest 7.64%, although it was incredibly hard to get a loan unless you were already a landowner or relative of someone prominent. Later, lending almost completely shut down during the Civil War.
Pre-Great Depression
Before the Great Depression, there was almost no government involvement in residential mortgage lending, and interest rates fluctuated based on personal decisions of the individual banks. While rates were not exorbitant (usually 7-9%), the home ownership rate was less than 50% in the U.S., with down payment requirements of 50% the norm. Most mortgage loans were short-term, set up with balloon payments, and interest-only.
1929 – The Great Depression
The U.S. financial system collapses, with 1 in 10 US mortgages end up foreclosed. Property values drop, and consumer confidence and bank lending are almost nil, making the fact that mortgage interest rates were still in the 3-10% range moot.
1940s
Spurned by the nation’s need for military production, industrial goods, and just about every other form of ration to support the troops overseas, U.S. interest rates were temporarily set as low as 1.85%.
1981
The U.S. saw the highest mortgage interest rate in modern history at 16.04% in 1981. From 1980-1984, the U.S. suffered their highest recorded 5-year run of rates when they averaged an astronomical 14.76%.
1980s-90s
Rates see volatility, as in 1987, rates jumped from 9.1% to about 11.4%, and in 1994, they spiked from 7.2% to about 9.4%.
2001
The US Federal Reserve lowers the Federal funds rate an unprecedented eleven straight times, from 6.5% to 1.75%, creating a lending frenzy.
2013
The lowest rate in modern U.S. history was registered in 2013, when the average conventional 30-year fixed loan fell to 3.66%.
2012-2017
The best 5-year+ run of rates was from 2009 into 2017, when they’ve averaged 3.91%
2017 4.15%
2016 3.65%
2015 3.85%
2014 4.17%
2013 3.98%
2012 3.66%
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So when someone says “We’re in a time of historically low interest rates,” they’re not lying!