How Mortgage Interest Rates Affect Your Home Purchase
A seemingly small difference in mortgage interest rate translates into thousands of dollars over the life of a loan. Understanding how rates affect payments — and what drives rate changes — helps you make a better-timed, better-informed home purchase decision.
How much does 1% matter?
On a $400,000, 30-year mortgage, the difference between a 6% and 7% interest rate is about $260 per month — and over $93,000 in total interest over the loan's life. Even 0.5% makes a meaningful difference at this scale. The interest rate calculator shows the full payment and total cost impact for any rate you input.
Fixed vs. adjustable-rate mortgages
A fixed-rate mortgage locks your interest rate for the entire term, giving you payment certainty. An adjustable-rate mortgage (ARM) offers a lower initial rate that adjusts periodically after an introductory period (e.g., a 5/1 ARM is fixed for 5 years, then adjusts annually). ARMs make sense when you plan to sell before the adjustment period or expect rates to fall.
What determines mortgage rates
Mortgage rates track the 10-year US Treasury bond yield plus a spread reflecting credit and liquidity risk. Your personal rate also depends on your credit score, down payment size, loan type, and lender — which is why shopping multiple lenders matters.