An interest rate is a percentage applied to a loan balance to determine how much the borrower will pay each month to borrow that sum of money.
A lower rate results in a lower payment for the same loan amount. For example, the monthly principal and interest payment for a $250,000 loan with a 4.5 percent interest rate is $1,267. The monthly payment for the same loan with a 5.0 percent interest rate is $1,342.
In addition to the stated rate, which is used to calculate your monthly payment, you’ll want to carefully compare the annual percentage rate, or APR. The APR is a better indication of the true cost of borrowing. For example, if both the 4.5 percent loan and the 5.0 percent loan came with identical costs, the 4.5 percent loan is obviously the better deal. But what if the 5.0 percent loan costs nothing, while the 4.5 percent loan costs $15,000? In this case, the APR for the 5.0 percent loan is 5.0 percent. The APR for the 4.5 percent loan? It’s 5.004 percent. APR allows you to compare loans with different rates and pricing.
You can compare current mortgage rates without having to provide any personal information using LendingTree’s LoanExplorer. Just keep in mind that these rates will change based on your personal credit score and history. And, the interest rate isn’t the whole picture when comparing mortgage loans. It’s also important to compare other factors that might make a lower rate less attractive or a higher rate more appealing.