How Interest Rates Affect Your Monthly Payment (With Examples)

Interest rates play a major role in determining what a home actually costs each month. Even a small change in rate can significantly impact your payment over time, which is why buyers should understand how rates affect affordability.

Your monthly mortgage payment is made up of principal and interest, and the interest rate determines how much you pay to borrow the money. A higher rate increases your monthly payment, while a lower rate reduces it—even if the purchase price stays the same.

Example:On a $500,000 loan with a 30-year term:

• At 6.0%, the estimated principal and interest payment is about $3,000 per month

• At 7.0%, the payment increases to about $3,325 per month

That difference of roughly $325 per month adds up to nearly $3,900 per year, without changing the home or loan amount.

Interest rates also affect buying power. When rates rise, buyers may need to adjust their price range to keep payments comfortable. When rates fall, the same payment can support a higher purchase price.

Understanding how rates impact monthly payments helps buyers make informed decisions, plan their budget, and choose a home that fits both their lifestyle and long-term financial goals.