An interest rate is the percentage of your loan amount that a lender charges you to borrow money. For mortgages, this rate determines how much you'll pay in interest over the life of your loan. The rate you receive depends on various factors including your credit score, down payment, loan term, and current market conditions. A lower interest rate means lower monthly payments and less money paid over the life of your loan.

While the interest rate represents the cost of borrowing money, the Annual Percentage Rate (APR) is a broader measure of the cost of your loan. APR includes the interest rate plus other costs such as mortgage insurance, discount points, and loan origination fees. Because APR includes more costs, it's typically higher than your interest rate. When comparing loans, looking at APR gives you a more complete picture of the total cost of borrowing.

You can lock in a mortgage rate by making a formal request with your lender once you've received and accepted a loan offer. A rate lock guarantees that specific interest rate for a set period, typically 30-60 days, while your loan application is being processed. This protects you from rate increases during that time. Some lenders may charge a fee for rate locks, especially for longer periods. It's important to ensure your rate lock period covers your expected closing date to avoid any rate adjustments.

The amount of mortgage you can qualify for depends on several factors: your income, debt-to-income ratio (DTI), credit score, down payment, and the type of loan you're seeking. Lenders typically prefer a DTI ratio of 43% or less and consider your monthly income, existing debts, and estimated property taxes and insurance. A higher credit score and larger down payment can help you qualify for a larger loan amount. Use our mortgage calculator to estimate your potential loan amount and monthly payments.

The best type of mortgage loan depends on your individual circumstances. Conventional loans are popular for borrowers with good credit and a stable income. FHA loans are great for first-time buyers with lower credit scores or smaller down payments. VA loans offer excellent terms for veterans and active military. Jumbo loans are designed for high-value properties. Consider factors like down payment requirements, interest rates, loan terms, and your long-term financial goals when choosing a mortgage type.

A teaser rate is an introductory interest rate that's lower than the standard rate and typically offered on adjustable-rate mortgages (ARMs). This rate usually lasts for a specific period, often 3-10 years, before adjusting to a variable rate based on market conditions. While teaser rates can offer lower initial payments, it's important to understand how much your rate and payments could increase after the introductory period ends.

Mortgage closing costs typically range from 2% to 5% of your loan amount. These costs include lender fees (application, origination, and underwriting), third-party fees (appraisal, title search, and insurance), prepaid expenses (property taxes and homeowners insurance), and points if you choose to buy down your rate. The exact amount varies by location, lender, and loan type. Some closing costs can be negotiated, and some lenders offer credits or options to roll closing costs into your loan amount.

The Federal Reserve influences mortgage rates indirectly through its monetary policy decisions. When the Fed adjusts the federal funds rate (the rate banks charge each other for overnight loans), it affects short-term and variable interest rates throughout the economy. While mortgage rates aren't directly tied to the federal funds rate, they often move in the same direction. The Fed's policies also affect inflation expectations and the overall economic environment, which impact long-term rates like mortgages.