Purchase and financing
Interest rate, explained
Interest is extra money you pay the lender for letting you borrow. The interest rate is the percent used to work out that extra cost each year. It is charged on the part of the loan you still owe. The annual percentage rate (APR) is another number that also counts some loan fees.
Published and maintained by Kevin Song for Your Home Cost. Last reviewed: . How guides are reviewed.
4 cited sources
Why it changes your estimate
A higher rate creates a higher monthly principal-and-interest payment and usually increases total interest over the life of the loan. It changes the loan portion of this estimate; it does not directly change property tax, homeowners insurance, homeowners association dues, utilities, or maintenance.
What to enter
Enter the note interest rate from page 1 of a lender's Loan Estimate or from a clearly documented quote. Enter 6.5 for 6.5%, not 0.065. If you do not have an offer, use the dated national 30-year conventional benchmark only for planning. It is not a state, city, or personalized rate. Compare quotes with the same loan type, term, down payment, and discount points.
Good to know
The planning benchmark used by the calculator is Freddie Mac's U.S. weekly Primary Mortgage Market Survey average. It is calculated from thousands of mortgage applications submitted through Freddie Mac's Loan Product Advisor and is designed to track conventional, conforming, fully amortizing home-purchase loans; the 30-year figure is not a quote for a shorter term, an adjustable-rate loan, a jumbo loan, or a Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA) loan. It also cannot reflect your credit, down payment, points, property, lender, or lock date. Annual percentage rate (APR) is a broader comparison measure that includes the note rate plus discount points, broker fees, and certain other charges, so do not enter the APR here. A discount point is an upfront charge that may buy a lower rate. A rate lock holds a quoted rate for a stated time if its conditions are met; expiration or major application changes can still affect it.
Make rate quotes genuinely comparable
Collect quotes close together because market pricing can change between days. For each offer, record the note rate, APR, discount points, lender credits, origination charges, loan type, term, down payment, and lock period. Compare the same combination rather than selecting the smallest rate from a quote that requires more upfront cash. Page 2 of the Loan Estimate shows the charges and credits that explain much of the difference.
Ask whether the rate is locked and what must happen before the lock expires. Note the expiration date, extension cost, and changes that could trigger repricing. Then stress-test the calculator with a modestly higher rate so the household can see the payment effect if the final quote changes. Replace the planning benchmark with the locked note rate only after the lender documents it.
- Compare quotes issued close together with matching loan type, term, and down payment.
- Record points and lender credits alongside the note rate rather than hiding upfront tradeoffs.
- Confirm the lock expiration, extension terms, and conditions that permit repricing.
Worked example
On a $360,000 fixed-rate loan over 30 years, principal and interest are about $2,158 per month at 6% and $2,395 at 7%. That is about $237 more each month before property tax, insurance, dues, and other home costs.
Sources and citations
These references support the definitions, planning guidance, and program rules above. A citation does not mean its publisher endorses this guide.
Original planning exercise
Estimate a points break-even window
Two hypothetical offers both lend $320,000 over 30 years. Offer A has a 6.5% note rate with no points. Offer B has a 6.25% note rate and charges $3,200 in additional points. Assume all other costs are identical.
Illustrative assumptions, not quotes or forecasts. Calculations by Your Home Cost; mortgage payment examples use the calculator's shared fixed-rate formula.
| Option or step | Calculation | Planning result |
|---|---|---|
| Offer A | $320,000 at 6.5% for 360 payments | $2,022.62/month principal and interest |
| Offer B | $320,000 at 6.25% for 360 payments | $1,970.30/month principal and interest |
| Simple cash break-even | $3,200 ÷ monthly payment savings | 61.2 months |
What the comparison tells you
The break-even window is a screening calculation, not a full economic comparison. It excludes differences in remaining principal, taxes and the return the upfront cash might earn. Selling or refinancing before that window can prevent the payment savings from recovering the extra points.
Evidence to collect
Use the same loan amount, lock period and quote date. Confirm that the $3,200 is an incremental charge after lender credits, rather than assuming the entire closing-cost difference represents points.
Apply it in the calculator
Enter the note rate for each scenario. Put points in the closing allowance or Other one-time costs once; do not use APR as the amortization rate.
Original planning exercise added . Source-review dates above are maintained separately.