Mortgage Rate FAQs — How Rates Work and What Affects Yours
Mortgage rates are the interest charged on a home loan. They vary by loan type, term, credit score, down payment, and broader economic conditions including Federal Reserve policy.
What determines my mortgage rate?
Your rate depends on: your credit score (higher scores = lower rates), loan-to-value ratio, loan type (conventional, FHA, VA, jumbo), loan term (15 vs 30 years), current market rates tied to the 10-year Treasury yield, and lender profit margins.
What is the difference between a fixed and adjustable mortgage rate?
Fixed rates stay the same for the entire loan term. Adjustable rates (ARMs) are fixed for an initial period (e.g., 5, 7, or 10 years) then reset periodically based on a benchmark index like SOFR. ARMs start lower but carry rate-change risk.
How much does a 1% higher rate cost on a $300,000 mortgage?
On a 30-year $300,000 mortgage, a 1% higher rate increases your monthly payment by approximately $170–$180 and adds roughly $60,000–$65,000 in total interest over the life of the loan.
What is a mortgage rate lock?
A rate lock guarantees your interest rate for a set period (typically 30–60 days) while your loan closes. If rates rise during that period, you keep the locked rate. Most lenders charge for extended locks beyond 60 days.
How can I get a lower mortgage rate?
Improve your credit score (aim for 760+), make a larger down payment (20%+ avoids PMI and often gets better rates), choose a shorter loan term (15-year rates are lower than 30-year), buy discount points, and compare multiple lenders.
Does the Federal Reserve set mortgage rates?
Indirectly. The Fed sets the federal funds rate, which influences short-term borrowing costs. Mortgage rates track the 10-year Treasury yield more closely, which responds to inflation expectations, economic growth, and investor demand.
How do I calculate a blended mortgage rate?
Multiply your first mortgage balance by its rate, multiply your second mortgage or HELOC balance by its rate, add the two products, then divide by the combined balance. A $320,000 first mortgage at 6.25% alongside an $80,000 HELOC at 8.75% gives ((320,000 × 0.0625) + (80,000 × 0.0875)) ÷ 400,000 = 6.75%.
How do I handle loans with different remaining terms?
A blended rate uses each loan's current outstanding balance and current rate, so it describes what you pay today rather than over the full life of the loans. It does not account for one loan being paid off years earlier than the other — if a balance is close to payoff, recalculate once it clears instead of treating today's blend as your long-run cost.
Ready to calculate?
Use our free tools to apply these concepts to your own numbers.