Sell & Buy

There's a lot to know about home loan rates

Loan interest is relatively easy to understand. But there's more to home loan rates than just interest. We'll discuss the difference between your interest rate and your annual percentage rate (APR) and how discount points affect your monthly payment. If you have specific questions or want to talk to an expert, prequalification is a great place to start.

Interest Rate

This is the percentage you pay to the lender in return for using their money. The actual percentage is different from lender to lender, and it changes constantly to keep up with the market. Once you apply for your loan, you’ll secure the current rate for a certain amount of time.

Annual percentage rate

Besides your home loan rate, there are some other expenses that could be bundled with your mortgage. These are things like your origination fees and application fees. If you choose to add them to your mortgage, you’ll pay interest on those too.

Your APR is the total cost you pay on your home loan each year, including principal, closing costs, discount points, and other fees.

Discount points

One way to get a lower home loan rate is to pay for discount points. This is when you pay fees directly to the lender in return for a lower interest rate. Doing this can be helpful in some situations, but not all. Our Mortgage Professionals can tell you much more.

Fixed-rate home loans

"Fixed" home loan rates means the rate never changes. Simple, right?

You lock in the security of a consistent rate, which is ideal if you plan to stay in the same home for a long time. And if home loan rates suddenly shoot up, you’ll keep the rate you had the day you closed on your loan.

Adjustable rates

An adjustable-rate loan, or ARM, gives you the flexibility to take advantage of favorable changes in home loan rates. Basically, if rates drop, your monthly payment drops accordingly, within certain limits. Of course, if rates rise, your adjustable rate probably will, too.

There are different types of ARMs and you often see them tagged with a pair of numbers—for example, a "5/1 adjustable." In this case, you get a fixed rate for five years, followed by one adjustment per year for the remainder of the loan. There are annual and lifetime limits for each adjustment.

So who comes up with home loan rates?

Home loan rates generally follow the rises and falls of rates on a 10-year U.S. treasury notes (which are affected by enough factors to fill an economics textbook.) There’s quite a bit more to the picture of how specific rates are determined, but generally, the 10-year treasury note is a baseline.

The really important thing is the rate you qualify for. Boiling down this number means starting with the index rate and adding a few more “ingredients” to the equation: These include things like your credit score, how much you want to borrow, your loan type, property type, and down payment size.


Keep going to learn more about the home buying process! The next section talks about all things closing related.