How Interest Rates Affect Your Home Mortgage

Interest rates play a huge role in how much you’ll ultimately pay for a home. Even a small change in rates can impact your monthly payment, your long-term costs, and even how much house you can afford.

1. Rates Change Your Monthly Payment

When rates go up, your monthly mortgage payment goes up too—sometimes by hundreds of dollars. When rates drop, your payment becomes more affordable. Example: A 1% rate increase can add tens of thousands in interest over the life of a loan.

2. Rates Affect How Much Home You Can Buy

Higher rates reduce your buying power because more of your payment goes toward interest instead of principal.
Lower rates mean you can qualify for a bigger loan—or keep things affordable on the home you love.

3. Rates Influence Housing Market Demand

When rates are low, more buyers enter the market, which can push home prices higher due to competition.
When rates are high, demand cools down, giving buyers more negotiating power and slowing price growth.

4. Rates Impact Refinancing Opportunities

Many homeowners refinance when rates fall to lock in a lower monthly payment or shorten their loan term.
When rates rise, refinancing becomes less attractive.

5. Fixed vs. Adjustable Rates React Differently

• Fixed-rate mortgages stay the same for the life of the loan—great for stability.

• Adjustable-rate mortgages (ARMs) can change over time, so rising rates can increase your payment later.