What One Percentage Point Does to a Mortgage
Quick answer
On a $320,000, 30-year mortgage, going from 6% to 7% raises the monthly principal-and-interest payment from $1,918.56 to $2,128.97, which is $210.41 more a month. Over 360 payments, that adds up to $75,746.27 more over the full term, from a difference that sounds small when it's quoted as one percentage point.
"6% versus 7%" sounds like a one-point difference, and that undersells what it does to a loan you'll be repaying for three decades. This guide works out the exact gap on a typical loan, both month by month and over the whole term.
It's worth knowing the figure precisely, because one percentage point is exactly the sort of gap that's easy to shrug off when you're comparing two lenders or two dates to lock in a rate.
The monthly gap
On a $320,000 loan over 30 years, a 6% rate gives a monthly principal-and-interest payment of $1,918.56. The same loan at 7% costs $2,128.97 a month. That's $210.41 more, from a rate difference people often talk about as if it hardly mattered.
$210.41 a month is a real, ongoing cost, much like a car payment or a hefty utility bill. And it exists purely because of where rates happened to be on a particular day, nothing to do with you or the home.
Over the whole loan, it's bigger than it feels
Multiply $210.41 by all 360 monthly payments over 30 years and you get $75,746.27. That's the extra you'd pay over the life of the loan because of that one point, assuming you keep the loan for the full term without paying it off early or refinancing.
That's more than most people expect from "one percentage point", because it applies to a large balance over a long time. The same one-point gap on a smaller loan or a shorter term adds up to less, so it's worth checking with the Mortgage Calculator using your own loan size and term, rather than assuming this example scales in a straight line.
- The gap doesn't grow evenly with the rate. On the same loan, going from 7% to 8% costs more, both monthly and in total, than going from 6% to 7%.
- Locking in a rate a few weeks earlier or later, or improving your credit score enough to get a better rate, can be worth exactly this kind of five-figure sum over the full term.
- Paying the loan off early, with extra payments or a shorter term, shrinks this gap, because you never pay the later years' interest. The Mortgage Payoff Calculator shows that comparison directly.
Frequently Asked Questions
Does this scale the same way for every loan size?
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No. A bigger loan means a bigger dollar gap from the same one-point difference, and a smaller loan a smaller one. Run your own loan amount through the Mortgage Calculator at both rates to see the figure that applies to you.
Is a one-point rate difference always this significant?
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It depends on the loan size and term. A $320,000, 30-year loan is a common reference point, but a smaller loan, a shorter term or paying off early all reduce the amount at stake.
Is it worth paying points to lower the rate?
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It depends on how long you'll keep the loan, and on what the points cost compared with the monthly saving they buy. That's a separate calculation from this guide, which only compares two rates you've already been quoted.
Why does the gap grow faster at higher rates?
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Because the payment doesn't rise in a straight line with the rate. Each extra point adds interest to a payment that's already carrying more interest than before, so the same one-point step costs more at higher rates than at lower ones.