What Does a 1 Percentage Point Higher Mortgage Rate Really Cost?
Compare monthly payment and total interest on a 30-year loan at 3%, 4% and 5%.
The numbers to take away
- On a US$300,000 30-year amortized loan, 3% is about US$1,265 a month.
- At 4% it is about US$1,432; at 5% about US$1,610.
- Total interest rises from roughly US$155,332 at 3% to US$279,767 at 5%.
Compare the whole loan, not only the monthly payment
All monetary figures in this guide are U.S. dollars (USD). A one-point change can look manageable month to month, yet persist for 360 payments. On a US$300,000 loan, moving from 3% to 4% adds about US$167 to the starting monthly payment and about US$60,276 in lifetime interest.
Moving from 4% to 5% adds another roughly US$178 per month and about US$64,159 in total interest under the same assumptions.
What the simple calculation leaves out
Real borrowing costs may include origination fees, mortgage insurance, property insurance, taxes and refinancing costs. Variable-rate loans also need a stress case rather than a single fixed rate.
- Check affordability at today’s rate and at a higher stress rate.
- Compare equal-payment and equal-principal schedules.
- Ask whether prepayments incur a fee.
When prepayment deserves a closer look
Paying down principal produces a return roughly equal to the avoided loan rate before considering taxes and fees. Investing instead may offer a higher expected return, but it also introduces volatility and uncertainty.
The right comparison uses after-tax investment returns, emergency liquidity and risk tolerance—not just two headline percentages.
Common questions
Why does my bank quote a different payment?
Lenders may use different day counts, payment dates, fees and rounding rules. Use the lender’s disclosure as the final source.
Does this include property tax or insurance?
No. It calculates principal and interest only.