How Much Do I Save When Interest Rates Drop?

When the market is showing highly unpredictable mortgage interest rate behavior, it can become a little draining hearing, “rates skyrocket!” and “rates plummet!” without knowing how these increases and decreases actually affect your bottom line. Let’s take a look at how an interest rate drop can affect you in two different ways: pay less per month or pay the same per month for a higher-priced home.   

What is a “Drop”? 

Real estate news headlines are, after all, specifically written to draw attention. As such, words like “jump” and “drop” have become fairly arbitrary when talking about interest rate movement. For the purpose of this article, we’ll define a drop as a significant enough decrease to attract buyers and sellers to the market. Yes, that’s still a little arbitrary too. So, here’s a real-life example:

In the month of January 2025, rates were between 6.90% to 7.04%. After a series of slight decreases throughout February, rates ended up at 6.63% in the first week of March 2025. The appeal of rates being closer to 6.5% than 7% is typically significant enough to inspire market activity. In this article, we’ll compare the rates of 7.04% and 6.63% in our examples. 

Monthly Savings

Notice how we used the term “closer to 6.5%”. It sounds pretty good and feels like you’re getting a great deal. But the question is, does that term equate to significant savings? That all depends on you. Let’s look at two price points with 10% down: 

• $700,000 | 7.04% – $4,209 | 6.63% – $4,037 | Difference: $172
• $350,000 | 7.04% – $2,105 | 6.63% – $2,019 | Difference: $86 

For some people, these savings could mean the difference between qualifying and not qualifying for a mortgage. It could also be the difference between feeling comfortable or not with the monthly payment. Or, it could make you shrug and say, “Eh.” If that’s the case, then the next section will show you a more significant way that an interest rate drop affects you. 

Increased Budget 

Interest rate drops can help open up your home search by allowing you to afford more for your money. Here are those monthly payments at a higher rate again, but this time, see how much higher the home price can go for an equivalent monthly payment at a lower interest rate. 

• $700,000 | 7.04% | $4,209 
• $730,000 | 6.63% | $4,210

The larger the price point, the larger the difference is going to be when rates drop. But even within a modest price range, the increase in budget can still have an impact on whether everything on your wishlist gets checked off.  

• $350,000 | 7.04% | $2,105 
• $365,000 | 6.63% | $2,105

An extra $15-30k in the budget could mean the difference between the right location, an updated kitchen, or professional landscaping. If those things are more important to you in your home search than monetary savings, then take full advantage of an interest rate drop that way! 

The Impact of an Interest Rate Drop  

The amount you save when interest rates drop depends on the home price you are searching for and the significance of the drop. Just remember, it’s not always about saving money. Interest rate drops mean you can choose between a lower monthly payment and an increase in your budget.

If you’d like to see where interest rates are today and what you can do with your budget, reach out to one of our mortgage bankers.