A mortgage rate is the interest rate you pay on the money you borrow to buy your house. A lower mortgage rate makes homes more affordable because it costs you less to borrow money, which in turn increases your purchasing power (the financial ability to buy the home).
Lenders set a mortgage rate for each person based on several personal factors, such as your credit, which determines the risk of loaning you money and whether you qualify for a loan, in addition to current market rates.
Even a small difference in your interest rate can make a big difference in your payments over the life of your loan. That’s why it’s important to watch mortgages rates closely if you’re buying a home.
To put rates in perspective, this chart outlines a $200,000 loan financed at various rates — allowing you to quickly see how rates impact your wallet.
|30-year fixed mortgage rate||approximate payment on a $300,000 mortgage|
Consider discount points
You may want to consider talking with your lender about buying discount points, which allow you to pay up front some of the interest on your home loan. In exchange, you receive a lower interest rate on your mortgage.
Buying discount points can save you money over the life of the loan, and points are most beneficial when you plan to own the home you're purchasing for more than 10 years.
Whether buying points makes sense depends on your personal situation. See how buying discount points might lower your mortgage rate with our discount points calculator.