Mortgage interest rates consistently change over time, especially during periods of economic uncertainty. In 2025, rates dropped after reaching a 15-year high following the pandemic, according to Fortune.com. A drop in rates is always a good opportunity to see if you’re ready to buy or refinance a home. A fast, accurate and free way to check is to use a mortgage calculator.
Using a mortgage calculator requires inputting specific loan information to determine what your estimated monthly mortgage payment would be. You can then recalculate by changing the information in fields, such as the loan amount, down payment and term, to get a variety of loan payment scenarios.
For a more detailed calculation, visit your preferred financial institution, like Travis Credit Union, to get pre-qualified for a home loan. Your lender will review your financial information and determine the interest rate and payment options available to you. Review various lenders, rates and loan programs to identify what loan scenario works best for you. Some lenders may let you lock in your rate for a short period while you shop for a home.
APR Versus Interest Rates
A mortgage typically has two rates that serve different purposes. One is the interest rate and the other is the annual percentage rate (APR).
- APR: A broader measure of borrowing that includes the mortgage interest rate along with any included costs wrapped into the loan, such as discount points, fees, insurance and closing costs.
- Interest Rate: The cost of borrowing the principal loan amount before any additional costs are added.
Using the APR to calculate your monthly payment is a more effective method with a mortgage calculator.
What Inputs Matter Most
The information fields for mortgage calculators vary. For example, some calculators will only let you input the loan amount, term and interest rate. The result of this calculation is just the monthly payment. If you want a result that includes private mortgage insurance, property taxes, homeowners association fees, a down payment and homeowners insurance, you’ll need to find an online calculator that has those fields.
How To Quickly Test ‘What if’ Scenarios
Because the amount of your loan payment can have a big impact on the amount you can borrow and your monthly budget, it’s smart to run several calculations at different interest rates. Start by adding 0.5% to your target rate or APR and see how much it affects payment. Do others with higher and lower rates and you’ll realize how much your interest rate can affect your monthly payment.
Use this same approach in the other information fields such as down payment, property taxes and homeowners insurance. This will give you a variety of results that can help you identify a monthly payment that fits your budget.
When Is an ARM Better Than a Fixed Rate
Different loans come with different rates. Two of the more traditional home loans are adjustable-rate mortgages (ARMs) and fixed-rate mortgages, according to Freddiemac.com.
- ARMs: Have a fixed initial period and then adjust after the period is over. For example, a 7/6 ARM has a 7-year fixed interest rate period, and after that time has passed, the rate will adjust every six months to whatever is the current market rate. This means your monthly payment could increase or decrease every six months.
- Fixed-Rate Mortgage: Loans where the interest rate stays the same throughout the life of the loan or until it is refinanced. Loans are available in 30-, 20- and 15-year terms. Fixed-rate loans provide you with peace of mind and budgeting confidence that your payments will remain the same over time.
When deciding on the right mortgage for yourself, consider how long you plan to live in the home. If you plan to live in it for only a few years and sell it, it could be beneficial to go with a 7/6 ARM that gives you a lower interest rate, so you’ll save money. If you plan to stay in your home long term, however, a fixed interest rate could potentially save you money over the life of the loan. This stability helps you plan your short- and long-term budgets.
When Does Refinancing Make Sense?
Refinancing your mortgage when rates drop is a smart way to lower your monthly payment and save money. When you refinance, your current loan will be paid off and the remaining balance is transferred into a new loan with a new term, interest rate and any costs associated with refinancing.
Along with seeking a lower interest rate, other reasons to refinance are to shorten your loan term, switch the type of loan you currently have or do a cash-out refinance where you take out equity from your home for improvements or other expenses.
Use the right mortgage calculator to decide if refinancing your loan will save you money. A good rule on refinancing is to wait until rates are at least 1% lower than your current interest rate.
How TCU Can Help
Travis Credit Union has a free mortgage calculator that can help you decide if it’s the right time to buy or refinance. Our knowledgeable loan officers can help you find the best home loan, such as a fixed-rate mortgage, an ARM or something else. Plus, you can get pre-approved for a home loan so you can start house hunting immediately. Visit traviscu.org today and get started on your home loan journey.