Mortgage Basics
Mortgage interest rates & APR.
Understand the numbers.
Compare with more confidence.
A mortgage quote brings together a rate, a payment, and costs. Here’s how to read them together—and ask useful questions before you choose.
Start with the basics01 / Two different measures
The rate and the APR tell you different things.
Interest rate
The annual percentage charged for borrowing the money. Along with your loan amount and term, it determines the principal-and-interest payment. It excludes loan fees.
Loan Estimate · Page 1
Loan Terms
Annual percentage rate
APR expresses interest and certain loan charges, including points and applicable broker fees, as an annual percentage. It is usually higher than the interest rate.
Loan Estimate · Page 3
Comparisons
Use APR to help compare similar loans. It does not replace a review of fees, cash to close, and how long you expect to keep the mortgage. For an adjustable-rate loan, APR does not show the maximum possible rate.
CFPB: interest rate and APR02 / What you pay
A small rate difference. A lasting cost difference.
Each payment on a typical fully amortizing mortgage pays interest and reduces the amount you owe, called principal. Early on, more goes toward interest. As the balance falls, more goes toward principal. This gradual repayment is called amortization.
CFPB: how paying down a mortgage worksSame loan amount. Same term. Different interest.
A $300,000 loan with a 30-year fixed rate and 360 monthly payments.
| Compare | Example A | Example B |
|---|---|---|
| Assumed interest rate | 6.50% | 6.25% |
| Monthly principal & interest | $1,896.20 | $1,847.15 |
| Interest over 30 years | $382,633 | $364,975 |
Illustrations only; these are not AMCFG rates, quotes, or APRs. Rates may change or may not be available at the time of loan commitment or lock-in. Assumes regular payments for the full term with no extra payments or early payoff. Excludes points, fees, taxes, homeowners insurance, mortgage insurance, and HOA dues. Monthly amounts are rounded to cents; total interest uses unrounded payments and is rounded to dollars. Actual loan rounding may differ.
Your full housing budget needs more than principal and interest. Include taxes, homeowners insurance, any mortgage insurance, and HOA dues when applicable. Those costs can change even when the interest rate stays fixed.
03 / The market and your situation
Why rates move. Why your quote is personal.
The wider market
Mortgage pricing responds to financial markets, including changes in inflation expectations and long-term bond yields. Lenders and investors also account for the risk of borrowers not repaying, or paying off loans early.
Fannie Mae: what determines mortgage ratesThe Federal Reserve
The Fed sets a target for an overnight bank lending rate. It influences borrowing conditions, but a mortgage quote also reflects expectations about future rates and the economy. A Fed rate cut does not promise an equal or immediate drop in your mortgage quote.
Federal Reserve: how monetary policy worksYour loan and profile
Your credit profile, down payment, loan amount, loan type, and repayment term affect pricing. Points, credits, and the lender’s pricing also matter. Two borrowers—or two lenders—can produce different quotes on the same day.
CFPB: how loan details affect pricingA published average is a reference point. It describes a group of loans, rather than an offer based on your application. Check its date and loan assumptions. Freddie Mac explains mortgage rate averages.
04 / After your loan closes
A new market quote is different from your existing loan.
Fixed-rate mortgage
The interest rate stays the same for the loan’s term. News about rising or falling market rates does not automatically change that rate.
With a typical fully amortizing fixed loan, the scheduled principal-and-interest payment stays level. Taxes and insurance can still change your total payment.
Adjustable-rate mortgage (ARM)
An ARM’s rate can change under the terms of the loan, often after an initial fixed period. The payment can rise.
Adjustments use a named market index plus a margin, subject to the loan’s limits. Check the first adjustment date, later adjustment frequency, rate caps, and any minimum rate.
For an ARM, ask for the highest payment allowed under the loan’s terms and consider whether you could afford it. Do not rely on being able to sell or refinance before an adjustment.
05 / Up front or over time
A lower rate can come with a higher upfront cost.
- Discount points
- Pay more at closing for a lower rate. One point costs 1% of the loan amount; it does not buy a standard rate reduction. Ask for the exact rate and dollar cost.
- Lender credits
- Reduce closing costs, generally in exchange for a higher rate. Some credits are unrelated to the rate, so ask what the credit covers and why it is offered.
- No points or credits
- A useful starting comparison. You can still owe origination, appraisal, title, and other closing charges.
Ask for total costs over several possible timeframes, including a shorter stay. Keeping cash available after closing also matters. A smaller payment alone does not settle the decision.
06 / Before closing
Know what your rate lock covers.
A rate lock holds the quoted interest rate for a stated period, provided you close on time and the relevant application details do not change. It is not a loan approval. Receiving a Loan Estimate does not automatically mean the rate is locked.
Ask your loan officer
- Is this rate locked, and what is the exact expiration date?
- What rate, points, credits, and lock costs are included?
- If closing is delayed, what would an extension cost and who pays?
- Which application or property changes could affect the locked terms?
- If rates fall, is a lower-rate option available? What are its conditions and fees?
Get the terms in writing and check the lock status at the top of page 1 of your Loan Estimate. Do not assume a lower rate will be available after locking.
CFPB: how rate locks work07 / Put your quotes side by side
Compare the same loan. Then compare the costs.
Request Loan Estimates for the same loan amount, term, loan type, and fixed or adjustable structure. Use the same property, down payment or equity, and points or credits. Compare quotes from the same day with matching lock periods and status, or ask lenders to explain the differences.
| Location | Check together |
|---|---|
| Page 1Terms & payment | Loan amount, term, rate, lock status, principal and interest, mortgage insurance, and total payment. Check for adjustments, a balloon payment, or a prepayment penalty. |
| Page 2Fees & closing cash | Section A origination charges (including points), Section B required services you cannot shop for, and Section J lender credits. Then review remaining costs and estimated cash to close. |
| Page 3Cost over time | APR and the “In 5 years” figures. Subtract principal paid off from the total paid to compare five-year interest and fees. Ask for a different timeframe if it better fits your plans. |
Lower estimates are not always lower costs. Taxes, insurance, prepaids, and initial escrow may use different assumptions. Ask why they differ. For an ARM, the five-year comparison is based on assumptions; rising rates can increase the actual cost.
CFPB: compare and negotiate loan offers08 / A few practical answers
Common questions.
Do I use the interest rate or APR in the calculator?
Use the interest rate to estimate principal and interest. APR is a broader cost comparison that includes certain loan charges; entering it as the interest rate would not reproduce the loan’s payment.
CFPB: interest rate versus APRDoes a higher APR mean I should rule out the loan?
Consider the full comparison. Your available cash, monthly budget, and likely time with the loan matter alongside APR. Ask for the dollar cost over the time you expect to keep the mortgage, using comparable loan terms.
CFPB: comparing loan offersWill my fixed-rate payment fall when market rates fall?
A market rate change does not change your existing fixed interest rate or scheduled principal-and-interest payment. Refinancing would replace that mortgage with a new loan, with new terms and costs to evaluate.
CFPB: fixed versus adjustable rates Understand refinancingWhy is my quote different from an online average?
An average combines rates from a particular group of loans and time period. Your loan details, financial profile, points, and quote date may differ. Check those assumptions before treating an advertised rate as a personal offer.
Freddie Mac: mortgage rates and averages