What If Interest Rates Rise?

Do rate hikes matter if I have a fixed-rate mortgage?

If your rate is fixed, your monthly principal-and-interest payment doesn’t change. But rates still matter in real life because they affect:

• Refinance options: you may not be able to refi into a lower payment if rates rise.
• Future moves: buying again could be far more expensive.
• ARMs and resets: if you have an ARM, a reset can directly increase your payment.
• Budget sensitivity: if you’re already tight, small changes become dangerous.

What is a “rate breakpoint”?

A breakpoint is the smallest rate hike that flips your monthly margin negative: income − (housing + expenses) < 0. Once you cross that line, you’re not “tight”—you’re burning savings every month.

How to use the tool to stress test rates

1. Enter your mortgage baseline (loan amount, rate, term) and escrow items.
2. Enter net monthly income, monthly expenses, and liquid savings.
3. Increase the Rate hike (+%) slider.
4. Watch stress margin, runway, and the rate breakpoint.

How far should you test?

There’s no single right number. Many people test +1% to +3% depending on how exposed they are:

• High exposure: ARM reset soon, refinance planned soon, or thin monthly margin.
• Moderate exposure: rate-sensitive budget but no near-term refinance.
• Lower exposure: strong margin, strong savings, no changes expected.

What to do if rates break your plan

• Increase runway: cash buffer buys time, which reduces panic decisions.
• Reduce burn: lowering monthly expenses often beats chasing a perfect rate.
• Create a refinance plan: know what rate you’d refinance at and what payment you target.
• De-risk housing: if you’re shopping, buy less house than the bank says you can.

Next: learn about payment shock and emergency fund sizing. Or go run your scenario: Mortgage Stress Test Tool.