Note Rate
The note rate is the actual interest rate specified in the promissory note that determines your monthly mortgage payment. This is the rate used to calculate the interest portion of each payment you make to the lender throughout the loan term.
Example
“Although the market rates fluctuated, her mortgage maintained a fixed note rate of 4.25% throughout the loan term.”
Memory Tip
The note rate is what's literally noted (written) in your loan paperwork - it's your actual rate.
Why It Matters
The note rate directly affects your monthly housing costs and total interest paid over the life of the loan. Even a small difference in note rate can mean thousands of dollars in additional payments over a 30-year mortgage.
Common Misconception
Some borrowers confuse the note rate with the APR, but the APR includes additional costs and fees while the note rate is just the interest rate on the loan itself.
In Practice
If your note rate is 6.5% on a $250,000 mortgage, your monthly principal and interest payment will be calculated using that 6.5% rate. A rate of 7% instead would increase your monthly payment by about $125.
Etymology
Combines 'note' from Latin 'nota' (written record) with 'rate' from Latin 'rata' meaning 'fixed amount,' literally the fixed percentage written in the loan document.
Common Misspellings
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