Mortgage Interest Explained

How rates are set, how interest accrues, and what APR really means.

How lenders price rates

Rates reflect Federal Reserve policy, mortgage-backed securities markets, credit score, loan-to-value, loan type, and discount points.

Rate vs APR

Rate is the cost of borrowing; APR wraps most lender fees into a yearly percentage for comparison. APR matters most when you keep the loan for many years.

Amortization basics

Early payments are mostly interest; principal share grows over time. Extra principal payments reduce total interest and shorten payoff.

Example

$300,000 at 6.25% for 30 years → $1,847 P&I; first payment is about $1,563 interest and $284 principal.

FAQ

• Do ARM rates always rise? No. They follow an index plus a margin and can fall if the index drops.
• Why is my quoted rate higher than “average”? Credit, LTV, property type, points, and occupancy all move pricing.
• Is paying points worth it? Only if the monthly savings times how long you keep the loan exceed the upfront cost.

Model your rate changes in the mortgage calculator or compare two quotes in side-by-side view.