Video — Mortgage Interest Rates Made Simple

Mortgage loans usually take decades to pay off, so the interest rate has a big impact on the actual cost of the loan over that time. A small change in interest rate can make for a huge swing in loan costs or payments.

Interest rates fluctuate all the time; see the video on Prime on this website to understand some of the underlying factors. While you are shopping for a mortgage, ask lenders about rate lock-in to give yourself options to handle the immediate market situation.

Keep in mind that the full cost of borrowing is higher than the interest rate alone. Lenders will provide an Annual Percentage Rate — APR — in Loan Estimate and Closing Disclosure forms. These include fees, mortgage insurance and the cost of points so you can understand the actual yearly cost.

Its easy to get emotional about interest rates in shopping a mortgage; market rates are publicized constantly. Focus on comparing each loan option in its entirety rather than interest rate alone.