What Is a Mortgage Interest Rate?

A mortgage interest rate is the cost of borrowing money to buy a home. It’s expressed as a percentage and determines how much interest you pay over the life of the loan.

✅ How Mortgage Interest Rates Work

Your mortgage rate directly impacts your monthly payment and total interest paid. Rates are influenced by factors such as:

  • Market conditions and inflation
  • Federal Reserve policy
  • Your credit score
  • Loan type (conventional, FHA, VA, etc.)
  • Loan term (15 vs. 30 years)
  • Down payment amount

Even a small rate difference—like 6.5% vs. 6.0%—can save tens of thousands of dollars over time.

📊 Fixed vs. Adjustable Mortgage Rates

Mortgage rates generally fall into two categories:

  • Fixed-rate mortgages: Interest rate stays the same for the life of the loan, offering predictable payments.
  • Adjustable-rate mortgages (ARMs): Rate may change periodically based on market conditions, affecting payment amounts.

Fixed rates offer stability, while ARMs may start cheaper but carry more risk.

💡 Why Mortgage Interest Rates Matter

Interest rates influence affordability and total borrowing costs.

  • Monthly payments: Higher rates = higher monthly costs.
  • Total interest paid: Over 30 years, even small differences add up.
  • Loan approval: Better rates often require stronger borrower profiles.
  • Refinancing opportunities: Lower rates may justify refinancing.

🏡 Interest Rates & FSBO Transactions

Interest rates influence buyer demand and affordability. When rates rise, fewer buyers may qualify for loans, which can affect offers and timelines for FSBO sellers.

Buyers with lower interest rates typically have lower monthly payments and stronger purchasing power—making them more competitive.

For more lending fundamentals, visit the Mortgage Guide.