Whether you’re buying your first home or refinancing your current one, mortgage rates will play an important role. Understanding the basics of rates can help take some confusion out of the mortgage process and empower you to make more informed decisions as you navigate your homebuying journey. Here are some important things to know about mortgage rates and how they work.

What Are Mortgage Rates?

A mortgage rate reflects the interest you’ll pay over the life of your home loan. Depending on the type of mortgage you take out, your rate can be fixed – where you’ll get the same rate for the entire duration of your loan – or variable, where it may fluctuate over time. Your lender can help talk you through your options to find the best fit for your situation.

How Mortgage Rates Are Determined

There are a range of factors that help to shape national mortgage rates. These include high-level economic conditions, such as: 

• Stock and bond markets
• Federal Reserve policies
• Inflation rates
   

On a more personal level, your financial situation will have a big impact on the actual mortgage rate you receive. Factors here could include: 

• Your credit score and history
• Your down payment size
• The size and length of your mortgage loan
   

Lenders often consider a variety of factors when determining mortgage rates, including but not limited to credit score, history of timely loan payments, and the size of the down payment. Demonstrating strength in any of these areas can help borrowers qualify for more favorable terms.

Because there are so many factors involved, the rate you’re quoted from one lender may be different than what you’re quoted from another. Your rate may also be different than what someone else gets, depending on their personal situation.

Even a Small Change in Rates Can Have a Big Impact on a Mortgage

When interest rates go up, the potential long-term cost of a mortgage can rise by tens of thousands of dollars – affecting the loan amount you may be approved for. For example, on a $300,000 home purchase with 5% down, a one percent difference in rates (from 6% to 7%) could result in paying nearly $200 more per month on your mortgage.

Your mortgage lender can work with you to determine a comfortable monthly payment, taking all factors into consideration.

Interest Rate and APR Are Not the Same Thing

When you apply for a mortgage, you’ll be quoted both an interest rate and an annual percentage rate (APR), which is the annual cost of a loan including fees. In other words, the APR is the interest rate calculated when the fees associated with making the loan are added to the original loan amount. This is important because the fees charged can vary from lender to lender, and the fees associated with the APR can vary as well, so the APR may not be the same even if the interest rate is.

_{All loans are subject to credit approval. Income and property restrictions may apply. Program guidelines are subject to change without notice. Not all products are available in all markets. Other restrictions apply.}