IIf you’re in the process of shopping for a mortgage, one of the most important things you’ll need to consider is the interest rate. The interest rate on your mortgage will determine how much you pay in interest over the life of the loan, so it’s important to understand the basics of how mortgage interest rates work.

First, it’s important to understand that interest rates can be fixed or adjustable. A fixed-rate mortgage has an interest rate that stays the same for the entire term of the loan, while an adjustable-rate mortgage (ARM) has an interest rate that can change over time, based on market conditions.

When it comes to fixed-rate mortgages, the interest rate is determined by a number of factors, including the current market rates, your credit score, the size of your down payment, and the length of the loan term. Typically, the longer the loan term, the higher the interest rate will be.

Adjustable-rate mortgages, on the other hand, have an interest rate that is fixed for a set period of time, usually 3, 5, or 7 years, after which the rate can adjust annually. The initial interest rate on an ARM is typically lower than the rate on a fixed-rate mortgage, which can make it an attractive option for borrowers who want to save money in the short term.

It’s important to note, however, that adjustable-rate mortgages can be riskier than fixed-rate mortgages, as the interest rate can increase over time, potentially leading to higher monthly payments. For this reason, it’s important to carefully consider your financial situation and your ability to afford potential increases in your mortgage payment before opting for an ARM.

Ultimately, the type of mortgage interest rate that is best for you will depend on your individual financial situation and your long-term goals. By understanding the basics of fixed-rate and adjustable-rate mortgages, you’ll be better equipped to make an informed decision when it comes to choosing a mortgage.