What is a mortgage rate?

Your mortgage rate is the interest rate charged on your home loan. It’s the cost of borrowing the money you need to purchase a home, and it’s expressed as a percentage. The higher the mortgage interest rate, the more you’ll pay each month and over the full term of the loan.

The mortgage rate that comes with your home loan will have a big impact on what you pay each month and overall. Here’s a closer look at the types of mortgage rates, how your interest rate is determined, and steps you can take to a secure a lower rate.

Mortgage rate basics

Interest is the cost of borrowing money, expressed as a percentage of the loan amount charged each year. For a simplified example, if you get a loan for $5,000 at 10% interest, $500 in interest will accrue after 1 year, assuming you make no payments.

Mortgage rates have varied widely over the past 50 years, falling as low as 2.65% in 2021 and reaching as high as 18.63% in 1981. In the past year, rates have mostly ranged between 6% and 7%.

The higher a loan’s interest rate, the more interest accrues. This means you’ll have a bigger monthly payment and pay more over the life of the loan. A lower interest rate on the same loan amount would give you lower monthly payments and save you money overall. As a result, the interest rate on your mortgage can have a big effect on how much house you can afford with your budget.

For example, if you get a $300,000 loan with a 30-year term, it will cost $1,995.91 per month and $718,527.60 overall at 7% interest. With a 6% interest rate on the same loan, it would cost $1,798.65 per month and $647,514 overall.

You can use Rocket Mortgage’s mortgage calculator to learn more about how your interest rate affects your monthly payment and total loan costs.

What’s the difference between the mortgage interest rate and the annual percentage rate (APR)?

When you’re getting a mortgage, you may see the loan’s interest rate expressed as a simple interest rate or an annual percentage rate (APR).

The difference between these rates is that an APR is a broader expression of the true cost of borrowing. Interest rates describe only how much interest accrues on your loan. An APR accounts for interest along with any additional fees, such as closing costs and discount points.

Because APRs include other costs, the APR of a loan is usually higher than the loan’s rate. For example, on May 20, 2026, Rocket Mortgage offered a 30-year fixed-rate loan with a rate of 6.875% and an APR of 7.174%.

What are the different types of mortgage rates?

Mortgage rates can come in one of two forms – fixed and adjustable. Both options provide unique tradeoffs for homebuyers depending on your financial situation and how long you plan to stay in the home.

Fixed-rate mortgages

With a fixed-rate mortgage, the interest rate is set when you take out a loan and does not change. It remains the same for the entire life of the loan.

Here are some of the perks of a fixed-rate mortgage:

• Most common type of loan: According to Freddie Mac, 90% of buyers choose fixed-rate mortgages.
• No rate changes: These loans are popular because they offer certainty. You don’t have to worry about the rate rising and making your monthly payment unaffordable.
• Rate locking: They let you lock in your rate early in the process without having to worry about losing it before closing.

Adjustable-rate mortgages

An adjustable-rate mortgage (ARM) has an interest rate that can change over time. With an ARM, you’ll have an initial interest rate that remains the same for a set period. After that introductory period ends, your interest rate will adjust on a regular basis. As the ARM loan rate rises or falls, your monthly payment could also rise and fall.

Here are the main features of an adjustable-rate loan:

• Introductory and adjustable periods: For example, a 5/1 ARM has a rate that is fixed for the first 5 years, then adjusts once per year after that.
• Less predictable: ARMs can be less predictable than fixed-rate loans. If rates rise, your payment could increase so much that it becomes unaffordable.
• Lower initial rates: However, they usually have lower rates than fixed-rate loans, at least at first. That makes them cheaper up front and popular with people who plan to sell the home or refinance before the introductory period ends.
• Adjustment caps: To help protect consumers, rate caps place limits on how much an ARM’s rate can adjust. ARMs may also have a maximum rate, placing a limit on how high the rate and monthly payment can rise.

How is your mortgage rate determined?

The interest rate you're offered on a mortgage will depend on both personal factors that you can control and market factors that are out of your control.

Personal factors

When lenders set the interest rate of a loan, they consider how much risk you pose as a borrower. The higher the perceived risk that you’ll default on the loan, the higher the interest rate the lender will charge to compensate for that risk.

During the underwriting process, lenders will review your finances to determine your eligibility for a loan and assess how well you’ve managed your finances.

When setting mortgage rates, lenders consider the following.

• Income and debt: The more money you make and the lower your debt-to-income ratio, the more easily you’ll be able to afford to keep up with your mortgage payments. This can help you land a lower rate.
• Credit score: Good credit shows that you have managed debts responsibly and make payments on time. As a result, lenders may offer a lower rate.
• Down payment: The bigger your down payment is, the more equity you’ll have in the home and the less risk the lender must accept by offering a loan. Making a larger down payment can help you get a reduced interest rate.

Market factors

There are also wider market factors that influence current mortgage rates for all borrowers. Here are some of the economic variables that impact your interest rate:

• Federal Reserve rates: The Federal Reserve frequently changes benchmark interest rates that affect how much it costs for banks to borrow money from each other. If the Fed raises rates, mortgage rates usually follow.
• Inflation: When inflation is high, the Fed may raise the federal funds rate to try to make it more expensive to borrow money and tame inflation. This tends to lead to an increase in mortgage rates. If the Fed reduces the federal funds rate to simulate the economy, mortgage rates tend to drop.
• The mortgage-backed securities market: Lenders usually package their loans into mortgage-backed securities (MBS) and sell them to investors on the open market. If the market for MBS is strong, lenders may lower rates so they can originate more loans and sell more MBS. If the market weakens, rates may go up.

What’s the ideal mortgage rate?

The lower your mortgage’s interest rate, the lower your monthly payment and the less you’ll pay over the life of the loan. Ideally, you’d want to lock in the lowest interest rate possible.

However, mortgage rates are also relative based on the current economic landscape at any given time. What’s considered a good rate today may seem high this time next year if rates drop. Similarly, a rate that seems high today may seem desirable if market rates jump in the coming months.

To understand what a good rate looks like, keep an eye on daily mortgage rates. Anything below the benchmark is a good deal. You can use rates advertised by local lenders and major banks as a good example, as well as check data on loan rates from the Federal Reserve.

How can you get a good mortgage interest rate?

While some factors that affect mortgage rates are out of your control, there are things you can do to actively lower your mortgage rate.

• Improve your credit score: Making consistent, on-time payments and working to reduce your debt can help you boost your credit score and get a lower interest rate.
• Purchase mortgage points: Buying mortgage points can help you get a lower interest rate in exchange for an upfront payment at closing.
• Save for a large down payment: A larger down payment means a smaller loan, which can lead to a lower interest rate. You may also be able to avoid private mortgage insurance (PMI). There are also down payment assistance programs and grants for those who qualify.
• Reduce your debt-to-income ratio (DTI): Lowering your DTI, especially revolving accounts like credit cards, makes your debt a smaller percentage of your income. Borrowers with less debt tend to get access to lower interest rates.
• Lock in rates: If interest rates drop after you apply for a loan, lock in your rate until closing so you don’t lose it.

Shopping around for a loan is also a good way to try to save. You can compare terms, rates, and other details of potential loans this way. Knowing what questions to ask a mortgage lender can make this process easier and more transparent.

Can you change your current mortgage rate?

If you have a fixed-rate mortgage, there are a few ways you can change your mortgage rate.

One option is to refinance¹ – which means taking out a new loan to pay off your existing mortgage, replacing that mortgage with a new one. Keep in mind that refinancing requires closing costs and other upfront fees. It only makes sense to refinance if rates have dropped enough that you’ll be saving enough to offset the upfront costs.

There are a few different types of mortgage refinancing:

• Rate-and-term refinance: This replaces your mortgage with a new loan that has a new rate and term.
• Cash-out refinance: This replaces your mortgage with a new one with a higher balance, letting you withdraw the difference and borrow against your home’s equity as cash.
• FHA streamline refinance ² : This type of refinance is available for FHA loans and requires minimal underwriting and no appraisal, which can help you close faster.
• No-closing-cost refinance: This type of refinance loan does not require closing costs. However, the lender typically rolls these costs into the loan or charges a higher interest rate.

If you find yourself struggling to handle your mortgage, you may also be able to adjust your interest rate by working with your lender to pursue loan modification.

Loan modification is an option for borrowers who are facing financial hardship to help avoid foreclosure. It’s a way to adjust the terms of your loan, whether that means lowering your interest rate or extending your repayment term. However, you may need to provide proof of your financial hardship. You can contact your lender for more details on what types of loan modification options they offer.

The bottom line: Comparison-shop to lock in the best mortgage rate

Your mortgage rate plays a major role in how much you’ll pay each month and overall, for your home. By familiarizing yourself with the differences between fixed and adjustable rates, you can confidently choose the option that best aligns with your priorities and goals. While economic factors drive the overall market, improving your credit score, lowering your debt, and saving for a solid down payment can help you secure better terms.

Ready to explore your financing options and find the perfect loan for your needs? You can start your Rocket Mortgage application today to see what rates you qualify for.

¹ Refinancing may increase finance charges over the life of the loan.

² The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.