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You pay your mortgage each month without a second thought. Have you ever looked at how much of it actually goes toward your loan balance versus interest? You may be surprised to learn that most of your payment is going straight to interest, not toward paying down what you owe.
The interest rate on your mortgage loan is amortized over your loan's term, determining how much interest accrues each month as you pay down your balance. It's important to understand how mortgage interest works and what you can do to save thousands over the life of your loan.
What Is Mortgage Interest?
Mortgage interest is the cost of borrowing money to buy a home. It's typically expressed as an annual rate, which helps determine your monthly payment and how much the financing arrangement will ultimately cost you.
Here's how it works. When you finance a home purchase, you'll pay back the principal balance plus interest. Your lender determines your interest rate based on your creditworthiness and market conditions. When you receive the loan, the rate will be applied to your balance to determine how much of your monthly payment goes toward interest and how much goes toward paying down the loan amount.
In the early years of your loan, most of your monthly payments will go toward interest. Over time, though, that portion decreases as your balance goes down.
APR vs. Interest Rate
When you see mortgage advertisements, you'll likely run across the terms interest rate and annual percentage rate (APR), and mortgage professionals may use them interchangeably. While these terms are related, they have different meanings, so it's important to understand the difference.
The interest rate on a mortgage is the percentage the lender charges to borrow money. By contrast, the APR is the interest rate plus fees, including origination fees and discount points. Because APR includes the interest rate and certain fees, it provides a closer estimate of the true cost of borrowing.
Learn more: APR vs. Interest Rate: What's the Difference?
How Is Mortgage Interest Calculated?
To calculate the mortgage interest on a home loan, your lender typically takes your annual interest rate, divides it by 12 to get a monthly rate and then multiplies that by your remaining loan balance. That calculation determines how much interest you owe each month.
Example: You have a mortgage interest rate of 6.25% and a remaining loan balance of $150,000. Your monthly interest rate is 0.52% (6.25 / 12 = 0.0052), so you will pay $780 in interest this month.
Because your balance is highest at the start of the loan, most of your early payments go toward interest rather than paying down what you borrowed. This process, known as amortization, changes over time so that more of each payment goes toward the principal.
In addition, your lender sets your rate based on several key factors, such as:
- Current market rates: Mortgage rates are constantly changing and vary based on more than the individual circumstances of each loan. Mortgage rates are largely driven by the 10-year U.S. Treasury yield, which in turn is influenced by current economic and geopolitical conditions and Federal Reserve policy decisions.
- Type of interest rate: When you apply for a mortgage, you'll choose between a fixed rate and an adjustable rate. A fixed rate stays the same, with a static monthly payment, for as long as you have the loan. By contrast, adjustable rates typically start lower for an initial fixed period, but then could rise if market rates go up.
- Loan amount: The more money you borrow, the greater risk you pose to the lender. As such, buying a less expensive house or making a larger down payment could potentially help reduce your interest rate. Even if it doesn't land you a lower rate, the smaller loan will save you money on interest.
- Repayment term: As with any loan, shorter repayment terms generally result in lower interest rates for two reasons. For starters, the lender faces a higher risk of default with a longer loan than a shorter one. Also, a longer repayment term means it will take longer for the lender to recoup their investment and re-lend the money you repay to another borrower.
- Credit and income: The higher your credit score, the more likely you are to qualify for a lower interest rate. Also, lenders will review your income and debt situation to calculate your debt-to-income ratio (DTI). If you have a low ratio—meaning the percentage of your income that goes toward monthly debt payments is low—it could result in a lower rate.
- Closing costs: These costs typically account for 2% to 5% of the home's sale price and are due at closing. Lenders may cover closing costs, though, in exchange for a higher interest rate. If you'd rather cut your interest rate instead, you can usually pay discount points at closing, which lets you pay some interest upfront to get a lower rate.
Learn more: Factors That Help Determine Your Mortgage Interest Rate
How Does Interest Work on Different Mortgage Types?
Mortgage interest can work a little differently depending on the type of mortgage you choose. Here's a quick summary of what you can expect with each one.
Fixed-Rate Mortgages
With a fixed-rate mortgage, your interest rate stays the same for the life of the loan. It's a great option when rates are low if you prefer a predictable monthly payment and plan to live in your home for a long time.
Fixed rates are usually higher than the starting rate for an adjustable-rate mortgage (ARM). But your rate will not increase or decrease for the life of your loan, even if mortgage rates offered on new loans go up or down. This is different from an ARM.
Fixed-rate mortgages are a type of amortized loan. In the beginning years of your loan, most of your payments go toward interest. As you get closer to the end of your loan payments, this flips and most payments go toward principal.
Tip: You may notice that your fixed-rate mortgage monthly payments fluctuate from year to year. This isn't because you're paying more in interest; it's often the result of property taxes or homeowners insurance costs increasing. If you have an escrow account, your mortgage lender collects these payments monthly as part of your mortgage payment, which could shift as insurance or taxes charges change.
Adjustable-Rate Mortgages
Adjustable-rate mortgages (ARMs) generally start with a lower rate than fixed-rate mortgages. The rate remains fixed for a set period, typically five, seven or even 10 years.
After the initial fixed period ends, though, your rate can go up or down depending on the current market mortgage rates. Adjustments typically occur every six or 12 months.
Example: Say you take out a 5/6 ARM today with a 6.32% interest rate, the March 2026 average according to Curinos data. That means your rate will remain the same for five years, and then adjust every six months after the introductory fixed period. If interest rates drop below 6%, that could mean great news for your monthly payments; on the other hand, if the interest rate increases to 7%, your payments will go up.
This option may be worth considering when rates are high or if you're not planning on staying in your home for very long.
Interest-Only Mortgages
As its name suggests, an interest-only mortgage only requires you to pay accrued interest during a certain period of time, typically three to 10 years.
Once the interest-only period is over, you'll enter an amortization phase and make principal-and-interest payments for the rest of your repayment term. Not surprisingly, your payments will increase substantially. Other options at the end of the interest-only period include making a balloon payment to pay off the principal balance all at once or refinancing the loan into a traditional mortgage.
Interest-only home loans are less common than fixed-rate and adjustable-rate mortgages and are often limited to well-qualified borrowers. These loans may work best for investors or borrowers with irregular income who can handle future payment increases.
Jumbo Mortgages
Jumbo loans can offer fixed or adjustable interest rates. The main difference is that interest rates on jumbo mortgages tend to be higher because they're larger than conforming mortgage loans. They also tend to come with stricter borrowing requirements, such as higher credit scores.
In 2026, the conforming loan limit is $832,750 in most counties, though it can go as high as $1,249,125 in high-cost areas. A loan above that threshold is considered a jumbo loan.
How Do Mortgage Rates Affect Monthly Mortgage Payments?
With a higher mortgage interest rate, you can expect a higher monthly payment. For most borrowers, a mortgage is the largest loan they'll ever take out, so even a slight change in your interest rate could have a meaningful impact on your monthly payment and how much you pay overall.
Here's a quick comparison showing how different mortgage rates could impact your monthly payment and total interest paid on a $400,000 mortgage with a 30-year repayment term (down payment and private mortgage insurance not included).
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 5% | $2,147 | $373,023 |
| 5.5% | $2,271 | $417,616 |
| 6% | $2,398 | $463,353 |
| 6.5% | $2,528 | $510,178 |
| 7% | $2,661 | $558,036 |
You can use Experian's mortgage calculator to get an idea of what different rates would look like for your specific situation.
Mortgage Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
Try the full Mortgage Calculator Opens a new window with more features.
Mortgage Interest Example
Your down payment impacts not only your interest rate but also the total amount you'll pay. Here's a quick example of how different down payment percentiles would look with a $400,000 purchase price, a 6.5% interest rate and a 30-year repayment term:
| Down Payment | Loan Amount | Monthly Payment | Total Interest Paid |
|---|---|---|---|
| 0% | $400,000 | $2,528 | $510,178 |
| 5% | $380,000 | $2,402 | $484,669 |
| 10% | $360,000 | $2,275 | $459,160 |
| 15% | $340,000 | $2,149 | $433,651 |
| 20% | $320,000 | $2,023 | $408,142 |
Keep in mind, too, that a higher down payment could also help you secure a lower interest rate, compounding your savings even more.
How to Get a Lower Mortgage Interest Rate
While some rate factors are out of your control, there are still several steps you can take to improve your chances of getting a lower interest rate on a new home loan. Here are some to consider:
- Improve your credit. Your credit is a significant factor in your approval odds and the rate you receive. Aim for a credit score of at least 620 to qualify, but a score of 740 or above may help you secure more favorable terms. The first step is to check your FICO® Score☉ Θ and Experian credit report for free to gauge your credit health and identify areas where you can make some improvements.
- Pay down debt. Take a look at your current debt and consider ways to pay down smaller balances before applying for a mortgage. Lowering your debt balances on revolving credit can improve your credit score, and each debt you wipe out will remove its payment from your DTI calculation.
- Make a larger down payment. Since lenders generally view larger down payments as lower risk, they may be more willing to offer you a lower rate. Also, putting down a higher amount will lower your loan amount, leaving you with a lower monthly payment and less interest to pay over the life of the loan. And if you put down 20% or more on a conventional loan, you can avoid private mortgage insurance, saving even more money.
- Choose a less expensive home. The less you borrow, the less risk you pose to the lender. Unless you can afford a higher monthly payment without sacrificing other important financial objectives, try to limit your house budget.
- Opt for a shorter term. If you can afford a higher monthly payment, you could score a lower rate by choosing a 15-year term instead of a 30-year term. You'll also own the home much sooner, which could free up cash for you for retirement, investments or other goals.
- Buy down the rate. If you're planning to keep the mortgage for a long time, consider buying discount points to reduce your rate. Each point typically costs 1% of the loan amount. The amount each point reduces your rate can vary depending on the lender, the type of loan you're getting and other factors.
Tip: You may get approved for a Federal Housing Administration (FHA) loan with a FICO® Score as low as 500 with a 3.5% down payment and limited credit history. Department of Veterans Affairs (VA) loans have no official minimum credit score set by the VA, though lenders often require a minimum score of 620 to 670. Even with these government-backed loans, though, stronger credit saves you money.
Frequently Asked Questions
What Is a Good Interest Rate for a Mortgage?
A good interest rate is one that's below the prevailing average rate for your area. The average interest rate for a 30-year fixed-rate mortgage is 6.37% as of April 2026, according to Freddie Mac.
When comparing rates, pay close attention to the APR, and not just the interest rate. The APR figure generally includes interest, fees and other loan costs. You might spot an appealing low interest rate, only to find a significantly higher APR. A big gap between the two could mean the loan includes higher fees.
Should I Buy a House With a High Interest Rate?
You'll often hear mortgage brokers say, "date the rate, marry the house." In other words, if you find your dream home and you can comfortably afford the monthly payment without stressing your budget or other financial goals, it may make sense to buy, even when mortgage rates are high. As mortgage rates start to come down again, you may be able to refinance your loan and reduce your monthly payment.
Is Mortgage Interest Calculated Daily or Monthly?
Mortgage loans typically accrue interest on a monthly basis, though some lenders may use a daily accrual method instead.
What Is the Mortgage Interest Deduction?
The mortgage interest deduction is a tax write-off that lets you subtract the interest you pay on your home loan from your taxable income. It may lower your tax bill if you itemize your deductions rather than taking the standard deduction.
To qualify, your mortgage must be on your primary home or a second home, and the loan can't exceed $750,000 ($375,000 if married filing separately) for mortgages taken out after December 15, 2017. Loans originated before that date fall under the older limit of $1 million.
Monitor Your Credit While You Shop for a Home
Your credit score plays a major role in the interest rate you'll qualify for, and even small changes during the homebuying process can affect your loan terms. Consider signing up for Experian's free credit monitoring for access to your Experian credit report and FICO® Score, so you can see exactly where you stand before you apply.
You'll also get real-time alerts when new inquiries or personal information are added to your credit report. That way, you can catch any surprises before your lender does, especially while your loan is in escrow and your finances are under heavy scrutiny.