How Mortgage Interest Rates Work
A plain-language look at what shapes your rate, and what's simply out of anyone's control.
What Determines Your Personal Rate
- Credit score. Generally, a higher score means access to better pricing, since it signals lower risk to the lender.
- Down payment / loan-to-value ratio. A larger down payment usually means a lower rate, since you're borrowing a smaller share of the home's value.
- Loan type. FHA, VA, USDA, and conventional loans are priced differently based on their own risk and guarantee structures.
- Loan term. A 15-year loan typically carries a lower rate than a 30-year loan on the same property.
- Property type & occupancy. A primary residence usually prices better than a second home or investment property.
- Debt-to-income ratio. Your overall debt load relative to your income factors into your pricing.
- Discount points. You can often pay an upfront fee to buy your rate down. Learn more about discount points.
What Moves Rates for Everyone
Day-to-day, mortgage rates move with the bond market, especially the yield on the 10-year U.S. Treasury note, not with any single announcement. The Federal Reserve doesn't set mortgage rates directly, though its policy decisions and outlook influence the broader interest rate environment that mortgage rates follow. Inflation expectations, economic data, and investor demand for mortgage-backed securities all play a role too, which is part of why rates can shift from day to day even when nothing about your personal finances has changed.
Fixed-Rate vs. Adjustable-Rate
A fixed-rate mortgage keeps the same interest rate for the life of the loan, so your principal and interest payment doesn't change. An adjustable-rate mortgage (ARM) typically starts with a lower rate for an initial period, then adjusts periodically based on market conditions. Which one fits depends on how long you plan to stay in the home and how much payment stability matters to you. What they don't tell you about ARMs.
Common Questions
Can I negotiate my rate?
In a sense. While the underlying pricing is based on your credit, loan type, and other factors, we can go over your options together, including whether paying points makes sense for your situation.
Why is my quote different from the rate I saw advertised?
Advertised rates are usually based on a specific credit score, down payment, and loan scenario. Your actual rate depends on your own numbers.
Should I pay points to lower my rate?
It depends on how long you plan to keep the loan. Paying points lowers your rate but costs money upfront, so it's worth reviewing the break-even point together.
Does a rate lock guarantee my rate won't change?
Once you lock, your rate is generally protected from market movement for the length of the lock period, though it's worth understanding the specific terms of your lock.