How mortgage rates actually work

Your interest rate is the price you pay to borrow. Because a mortgage is large and lasts decades, a difference that looks tiny — say 6.0% versus 6.5% — can add up to tens of thousands over the life of the loan. That's why it's worth understanding where the number comes from, and which parts you can influence.

Every quote is really two things stacked together:

• The market “base”— set nationally by central-bank policy and bond markets, not by your town. This is the tide that lifts or lowers all rates at once, and it's why we show a single national average rather than a per-state figure.
• Your personal markup — lenders adjust from that base depending on how risky you look: your credit history, your deposit size (loan-to-value), the loan term, and the property type.

So two people applying on the same day can be quoted different rates — the base is shared, the markup is personal.

A fixed rate stays the same for a set period, giving you a predictable payment. A variable rate can move up or down over time. How this plays out depends on where you are:

• United States — the 30-year fixed dominates: your rate can be locked for the entire loan, which is unusually borrower-friendly.
• Canada — you pick a term (often 1, 3, or 5 years) during which the rate holds, then you renew at whatever rates are then current — even though the loan amortizes over 25 years or so.
• United Kingdom — a short fixed deal (usually 2 or 5 years) then you roll onto the lender's higher standard variable rate (SVR) unless you remortgage. Our UK calculator shows that jump explicitly.

The biggest driver is inflation and central-bank policy. When inflation is high, the Federal Reserve, Bank of Canada, and Bank of England tend to raise their benchmark rates to cool things down, and mortgage rates follow. When the economy slows, rates often come back down. Bond markets move in anticipation, so mortgage rates can shift before any official announcement.

You can see the recent direction of travel in the live rate-trend chart on the calculator pages — including how today compares with last month and last year.

A headline rate can hide fees. In the US the APRrolls certain fees into one comparable number, and “points” let you pay upfront to buy a lower rate. Elsewhere, arrangement or product fees do something similar. Always compare the total cost of a deal — rate plus fees over the period you'll actually keep it — not just the rate on the poster.

You can't move the central bank, but you can move your markup:

• Improve your credit before applying — a stronger history means a lower markup.
• Put down more — a bigger deposit lowers your loan-to-value and often drops you into a cheaper rate band. (See how much deposit you need.)
• Shop around — get quotes from several lenders or a broker; the same borrower is priced differently by different lenders.
• Mind the timing of your lock— once you have a good quote, understand how long it's held for.

• Type any rate into the mortgage calculator to see exactly what it does to your monthly payment and total interest.
• Want the maths? See how we calculate — including the US vs Canadian compounding difference most calculators get wrong.