Mortgage Rates Mortgage Questions

Explore sample Mortgage Rates questions and educational explanations from the RatesQ team.

• Why is my mortgage APR higher than my interest rate?

  I'm comparing loan estimates from two lenders. Both show a 6.875% interest rate but one has an APR of 7.12% and the other 7.35%. What's in the APR that makes it higher? And which number should I actually be comparing?

  APR is the interest rate plus most of the upfront costs spread over the life of the loan, expressed as an annual rate. So a lender charging origination fees, discount points, or other costs will show a higher APR even at the same interest rate. The gap between your two lenders — 7.12% vs 7.35% — is pretty significant and probably means the second lender is charging more in fees or points. Look at page 2 of your Loan Estimates side by side.

  APR is a standardized way to compare total loan costs, but it has limits: it assumes you hold the loan to maturity, which most people don't. If you plan to sell or refinance in 5–7 years, sometimes a slightly higher APR with lender credits actually costs you less out of pocket over that period. Best approach: compare total closing costs (page 2 of the Loan Estimate), monthly payment, and the break-even point if paying points. Don't just look at rate or APR alone.

• Should I lock my mortgage rate now or wait?

  I'm under contract with about 35 days to close. The rate I was quoted is 7.0%. My LO is telling me to lock now but my gut says rates might come down. Is there any data or strategy for deciding when to lock?

  Honestly nobody knows where rates go in 35 days, not even the Fed. The question to ask yourself is: can I comfortably afford the loan at today's rate? If yes, locking eliminates the risk of rates going higher before closing. If rates drop after you lock, you lose the savings — but you also avoid any nasty surprises. Most people under contract lock.

  Your LO isn't wrong to suggest locking. On a 30-day or 45-day purchase lock, the cost is usually already baked into the pricing — you're not paying extra. The float-down option (ability to lower your locked rate if rates drop) is a separate product some lenders offer, usually for a fee of 0.1–0.5% of the loan amount. Whether it's worth it depends on how much you expect rates to drop and the probability. Given current volatility I'd lock and close without the extra complexity, but ask your LO specifically what a float-down would cost vs. what a 0.25% rate drop would save you monthly.

  I waited to lock on my purchase in 2023 thinking rates would drop. They went up another 0.375% before my closing. Locked at the peak. Won't make that mistake again.

• Is paying points worth it if I may refinance later?

  Lender A is offering 6.75% with no points. Lender B is offering 6.375% but wants 1.5 points (1.5% of the loan amount = about $4,500). I plan to stay in the house long term but who knows what rates will do. How do I decide if paying points makes sense?

  Break-even math: if 1.5 points costs $4,500 and saves you $80/month, you break even in about 56 months (4.7 years). If you're confident you'll stay 7+ years without refinancing, the points probably make sense. But 'long term' plans change. If rates drop in 2–3 years and you refinance, you'd still be underwater on those points.

  The math is right but there's a nuance: those points are pre-paid interest and generally tax-deductible in the year paid (check with your tax advisor on this). That can shift the break-even shorter. Also think about opportunity cost — $4,500 invested instead of paid upfront. Personally for 1.5 points on a rate difference of 0.375%, I'd want the break-even under 4 years for it to feel compelling. Ask the lender to model the total interest cost at year 5 and year 10 for both scenarios.

• How much does a 1% rate difference actually matter over 30 years?

  A family member said a 1% lower rate saves you 'tens of thousands' but my LO said it barely matters on a $300k loan. Who's right?

  Your family member is right for the full 30-year scenario. On a $300k loan at 7% vs 6%, monthly payment goes from about $1,996 to $1,799 — a difference of $197/month. Over 30 years that's $70,900 in total interest savings. Over 10 years it's about $23,600. Your LO is probably thinking about the scenario where you sell or refinance in 5-7 years — in that case the savings are smaller but still meaningful: about $11,800-$16,600. Both are telling the truth depending on the time horizon.

  And this is exactly why shopping multiple lenders matters. A 0.25% rate difference on a $400k loan is about $55/month = $660/year = ~$4,600 over 7 years. Getting 3-4 Loan Estimates takes a few hours and can save you more than that. The rates really do vary between lenders.