Chapter 18: Mortgage Rates Explained in Depth

Chapter 18: Mortgage Rates Explained in Depth

A Scene from Real Life

Two buyers, 6.5% vs 7.25%, same bank, same week! The 0.75% gap = $150/month = $54,000 over 30 years. Your rate is personal, built from your components.

Fixed vs Adjustable

30-year fixed: never changes. ~6-7% in 2026. 15-year fixed: 0.5-0.75% lower but higher payment. 5/1 ARM: fixed 5 years, then adjusts. Only if selling within 5-7 years. Know the caps!

APR vs Interest Rate

APR = rate + costs spread over the term. Always compare APR — it reveals the true cost.

Discount Points

1 point = 1% upfront to cut the rate ~0.25%. Example: $300K loan, 2 points ($6,000) saves $100/month. Breakeven: 60 months. Buy points only if staying longer than breakeven.

What Sets Your Rate

• Credit score: 620 vs 760 can differ by a full 1%!
• LTV: bigger down payment = lower rate.
• Loan type, property type, term.

Action Steps

• Know your score before shopping; every 20 points saves money.
• Compare APR, not the advertised rate.
• Calculate points breakeven before buying.
• Lock when happy; ask about float-down.

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