Note Rate
The note rate is the actual interest rate stated on your mortgage note—the rate used to calculate your monthly principal and interest payment. It differs from the APR, which includes fees and gives a broader picture of loan cost. The note rate is the number that directly determines how much you pay each month.
When a lender advertises a rate of 7.0%, that's the note rate. Your monthly payment on a $300,000 loan at 7.0% for 30 years would be $1,995.91 in principal and interest. That calculation uses only the note rate—it doesn't factor in closing costs, origination fees, or mortgage insurance.
The APR will always be higher than the note rate (unless there are no fees, in which case they're equal) because it amortizes the loan's fees over the assumed loan term. A 7.0% note rate with $5,000 in fees on a $300,000 loan might show a 7.22% APR. If you refinance or move before the loan term ends, the APR is less accurate as a comparison tool.
For adjustable-rate mortgages, the note rate starts at the initial rate (e.g., 6.5% for the first 5 years on a 5/1 ARM), then adjusts based on an index plus a margin. The note rate at any given time determines your payment for that period.
Key Takeaway
The note rate is the actual interest rate stated on your mortgage note—the rate used to calculate your monthly principal and interest payment. It differs from the APR, which includes fees and gives a broader picture of loan cost. The note rate is the number that directly determines how much you pay each month.
Related Terms
Frequently Asked Questions
The note rate calculates your monthly payment. The APR adds closing costs to give a more complete picture of annual loan cost. Always compare APRs when shopping multiple lenders—not just note rates.
Not necessarily. A lower note rate with high fees could cost more overall than a slightly higher rate with fewer fees, depending on how long you keep the loan. Use the APR and break-even analysis to compare.
On a fixed-rate mortgage, no—it stays the same for the entire loan term. On an adjustable-rate mortgage, the note rate changes at each adjustment period based on the index and margin defined in your loan documents.
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