Mortgage & Home Loans

What is Interest Rate?

An interest rate is the percentage a lender charges you to borrow money, calculated annually. Rates move based on the Federal Reserve's policy, inflation, the economy, and your personal factors like credit score and LTV ratio.

Lenders quote nominal rates, which don't include fees or closing costs. The rate you get directly determines your monthly payment and how much the loan costs you over time.

You can lock in a rate during the application process to protect against increases. When rates are high, buying discount points can lower your rate. When they drop, refinancing lets you capture the savings.

Quick Facts

Prime Rate InfluencerFederal Reserve Federal Funds Rate

Cost MeasurementNominal annual percentage rate

Credit Score CorrelationHigher credit score = Lower interest rate

Rate Lowering OptionBuying discount points at closing

PRACTICAL EXAMPLE

Borrow $350,000 at 6.0% and your monthly payment is $2,098.44. At 7.0%, that same loan costs $2,328.56 per month—$230 more. Over 30 years, that difference adds up to $82,843 in extra interest.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

PrincipalThe original amount of money borrowed on a mortgage loan, or the outstanding balance remaining unpaid.

APRA broader measure of the cost of borrowing mortgage money, incorporating the interest rate, broker fees, and closing costs.

Fixed-Rate MortgageA home loan featuring a constant interest rate that never changes over the entire lifespan of the loan.

Adjustable-Rate Mortgage (ARM)A mortgage loan with an interest rate that is fixed for an initial period and then adjusts periodically based on market indexes.

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Disclaimer: NetWorthFlow provides financial calculators, simulators, and projection tools for informational and educational purposes only. None of the calculations, data, or results displayed on this website constitute professional financial, investment, tax, or legal advice. All calculations are mathematical models based on user-supplied variables and general assumptions, which may not reflect real-world market outcomes. Always consult with a certified financial planner, licensed investment advisor, or qualified tax professional before making any financial decisions.

Automated tools are not a substitute for professional counsel. We strongly advise that you consult a qualified Certified Financial Planner (CFP®), Registered Investment Adviser (RIA), Certified Public Accountant (CPA), or legal expert before making significant decisions regarding taxes, mortgages, retirement planning, investments, or debt management.