Answer
The “3-7-3 rule” is an old rule of thumb describing how traditional banks might aim to profit from mortgages: pay depositors about 3%, lend money at about 7%, and earn a 3% spread. Modern mortgage markets are more complex and competitive, so actual deposit rates, mortgage rates, and profit margins change with economic conditions and regulations.
For borrowers, the phrase simply underscores how even a few percentage points in interest rate dramatically affect long-term interest costs. With mortgagepaymentcalculator.com, you can clearly see how rate changes from, say, 5% to 7% alter both your monthly payment and total interest across the loan term.
Want to see the difference a couple of points can make? Use our mortgage payment calculator and compare the same loan amount at 5%, 6%, and 7% to spot the payment and total-interest jump.
Why the “spread” matters to you as a borrower
Even though 3-7-3 is a simplified concept, it points to a real takeaway: rate changes compound over time. Mortgages are long-term loans, so a higher rate doesn’t just change the first payment-it can add up to a much larger total interest bill over 15 or 30 years.
- A small rate change can meaningfully shift your monthly budget.
- The longer the term, the more years the rate has to compound.
- Comparing scenarios is often more useful than memorizing rules of thumb.
Use rate scenarios to keep affordability realistic
If you’re shopping for a home, it helps to test your payment at a few different rates-even if you already have a quote-so you know how sensitive your budget is. This is especially useful when you’re trying to decide how much house you can comfortably afford.