The interest rate is the cost of borrowing money, expressed as a percentage of the loan amount charged annually by the lender. In a mortgage, the interest rate determines how much the borrower pays the lender for the use of funds — in addition to repaying the principal balance. Even small differences in interest rates can have a dramatic impact on total costs: on a $350,000 30-year mortgage, the difference between 6.5% and 7.0% is approximately $83 per month — or nearly $30,000 over the life of the loan.
Interest rates can be fixed or adjustable. A fixed-rate mortgage locks in the same rate for the entire loan term — providing payment certainty but potentially missing out on future rate drops. An adjustable-rate mortgage (ARM) starts with a lower introductory rate that later adjusts based on a benchmark index plus a margin — offering initial savings but with the risk of future increases. The choice between fixed and adjustable depends on how long you plan to keep the loan, your risk tolerance, and current market conditions.
Several factors influence the rate a borrower receives. Credit score is the most significant — higher scores qualify for lower rates. Loan-to-value ratio (LTV) matters too: a larger down payment means less risk for the lender and a better rate. Loan type affects rates: conventional loans, FHA, VA, and jumbo loans each have different rate structures. Loan term matters: 15-year mortgages typically carry lower rates than 30-year mortgages. And property type plays a role: primary residences get the best rates, followed by second homes, then investment properties.
Borrowers can also pay discount points to buy down the rate — each point (1% of the loan amount) typically reduces the rate by 0.125% to 0.25%. Conversely, accepting a slightly higher rate can earn lender credits that reduce closing costs. Use Beycome's mortgage calculator to model different rate scenarios and see the impact on your monthly payment and total interest costs.
At closing, the interest rate is permanently documented on the promissory note and closing disclosure. The CD also shows the annual percentage rate (APR) — which includes the interest rate plus certain fees and points — giving a more complete picture of the loan's true cost. At Beycome Title, we ensure every financial detail on your closing documents is accurate. Get your free closing estimate.