How mortgage rates are determined
Mortgage rates come from the bond market and from your own profile. This page explains both, and the calculator shows what a rate difference costs you in dollars.
What the market sets
Mortgage rates track the yield on long-term bonds, especially mortgage-backed securities, which move with inflation expectations, the Federal Reserve’s policy and economic data. Lenders add a margin for costs and profit. That is why rates can move in a day even if the Fed does nothing.
What you control
Your credit score, down payment, loan type, term, property type and whether you pay points set your personal rate on top of the market. A higher score and a larger down payment generally mean a lower rate. Comparing several lenders on the same day matters, because their margins differ.
The two loans compared
Loan A ($350,000 at 6.25% for 30 years) costs $2,155.01 a month and $425,804 in interest. Loan B ($350,000 at 7% for 30 years) costs $2,328.56 a month and $488,280 in interest. Loan A costs less in total, by $62,476, while its monthly payment is lower by $173.55.
| Loan A | Loan B | |
|---|---|---|
| Amount | $350,000 | $350,000 |
| Rate | 6.25% | 7% |
| Term | 30 years | 30 years |
| Monthly payment | $2,155.01 | $2,328.56 |
| Total interest | $425,804 | $488,280 |
| Total paid | $775,804 | $838,280 |
Frequently asked questions
Who decides mortgage rates?
Lenders set them, based on bond-market yields, their costs and your risk profile. The Fed influences rates but does not set mortgage rates directly.
How much does my credit score affect my rate?
A lot. The best scores can save a half point or more compared with average scores, which is worth tens of thousands over a 30-year loan.
Related calculators
Estimates from standard loan formulas, not a loan offer or financial advice. Example rates are assumptions: use your own quote.