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In this video by the Bank of America, they explain - in a simplified manner - why Interest Rates fluctuate. Essentially, Interest Rates fluctuate based on the Government's decision to keep the Economy stable. The Government has two main goals: to keep prices stable, and to generate jobs. If prices of products are too high (usually due to high inflation), the government then increases Interest Rates, which in turn will make people spend and borrow less money, and in the end will "force" the sellers to lower the prices of their products. In order to generate more jobs, the Government does the opposite - it lowers Interest Rates. By doing that, they incentivize people to take on loans, buy more products, etc; by doing that, they are directly generated more jobs.

I chose this video because it is short, very well explained and has very few written parts - mostly figures, which helps to understand better this subject that can be pretty difficult to understand.

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How are Interest Rates Determined and What Affects Interest Rates

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On this Globe and Mail article by Gary Rabbior, he talks a little about how inflation influences changes in Interest Rates: if inflation goes up, Interest Rates also go up, and vice-versa. He mentions that if the Bank of Canada senses that inflation might go up, they increase Interest Rates in order to make people spend less and consequently, bring the inflation rates down; accordingly, if they think that inflation might go down, the Bank lowers Interest Rates, which attract people to spend more and take on loans, which will in return provide more money to the Government.

I chose this article because I think it was explained in a very simple yet knowledgable way. Rabbior also linked some other sources on this article if you are interested in learning more about understanding the Economy and the Dollar.

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Gary Rabbior is the president of the Canadian Foundation for Economic Education. This is the last of a six-part series on understanding how the economy works and why it matters to investors.
To understand why investors should care about how Canada's money is managed, there are a number of key things to note.

One, if there are signs of inflation growing in our economy, then investors should be aware that is it likely that interest rates will start to rise. This will happen for two reasons. First, lenders will want to start protecting themselves against the erosive effects of inflation - so they will start to add an "inflation premium" to interest rates.

Second, if the Bank of Canada appears concerned about the rising rate of inflation, then it will start to try and push interest rates up to dampen spending, borrowing, and demand to try and cool off the inflationary pressures.

So, if it looks like there may be "too much money and too much spending" ahead, investors should consider possible higher interest rates in their decisions.

Consider the current situation. Interest rates are at virtually a historic low. There has been unprecedented government stimulus spending to try and boost the economy. As the economy recovers, and with all that government spending in the system, there is a possibility that spending may overheat the economy. Managing the reduction and removal of the stimulus spending will be difficult for governments and, if it is not managed well, rising inflation could be unleashed. With signs of that - and with signs of a recovering economy - the Bank of Canada may start to move rates higher to try and keep a lid on the increases in spending, borrowing, and demand in the economy. Conclusion - within the year, interest rates should start to rise. How fast and how high they may rise will depend on the rate of increase in spending and prices in the economy.

An Investor's Guide to Understanding the Economy:

Part 1: How the money in the economy is managed

Part 2: <b>How inflation works</b>

Part 3: Avoiding the deflationary spiral

Part 4: How much money is too much money?

Part 5: How markets and currencies work

Part 6: How interest rates affect your investments

If there are signs of a sagging economy, then one can look to a decrease in interest rates - or for low interest rates to stay low. For example, some people talk about how fragile the current recovery is. There is talk of a possible "double-dip" recession - that is, some recovery and then another turn down. But if events did unfold that indicated that the economy may take a turn down, then one could assume that interest rates will continue to stay low for some time.

If the value of the Canadian dollar should rise to where the Bank of Canada is expressing concern, this is a sign that the demand for Canadians dollars - to buy our exports, to invest in Canada, to speculate on the value of the Canadian dollar, etc. - is high relative to the supply. The Bank can try and increase the supply of Canadian dollars by buying up foreign currencies with Canadian dollars. It could also try and reduce the demand for our dollar - perhaps by lowering interest rates. But that would be hard for the Bank to do at this time due to how low interest rates are.

If the value of the dollar should start to fall to where the Bank gets concerned, then the Bank may take actions to try and boost its value. Why would the Bank be concerned about a low valued dollar? One reason might be because it would push up the cost of imports to Canadians which can help fuel inflation. A falling dollar would be a sign that the demand for the dollar in exchange markets is relatively low compared with the supply. To boost the value of the dollar, the Bank may try and reduce the supply (e.g. using reserves to buy up Canadian dollars) or it could raise interest rates to attract foreign investment looking for a higher return - or speculating that the dollar`s value is going to rise because of actions by the Bank of Canada.

The Bank of Canada could, then, take actions at various times to try and ensure that monetary conditions are appropriate for the Canadian economy and try and ensure that the rate of inflation stays within its target range. The Bank will aim to manage monetary conditions to support growth as it occurs in the Canadian economy and to boost spending if the economy looks like it may be turning down or heading to recession.

The Bank will also look to protect the international value of our money and try and ensure that the exchange rate for the Canadian dollar is consistent with economic conditions and the health and status of Canada`s economy.

The actions taken by the Bank of Canada can affect the rate of inflation, inflation expectations, and interest rates - and all of these are important factors for investors to consider. Inflation erodes returns on investments and the higher the rate of inflation, the more challenging it is to earn attractive real rates of return.

Changes in interest rates affect stock prices, bond prices, and the value of many other investments. Having an understanding of how our money is managed in Canada - and what the Bank of Canada is trying to achieve - and what it may do to try and achieve its goals - are all important for investors to understand.

Investor Education: Bonds

How much do bonds pay?

How can I diversify the bonds I buy?

How do strip bonds, index bonds, and real return bonds work?

How do bonds work?

What are savings bonds?

Seven steps to buy stocks and bonds

A key thing to note is the importance of inflation expectations. As many investors know, those who make investments and affect the market value of investments, try to look ahead. Investors will try and buy the stock of a company that is going to do well in the future. They will try and sell the stock of a company that is not going to do well in the future. That is where the old adage `buy on rumour, sell on news` comes from. It really means that many investors try and buy or sell on the anticipation of what will happen - not what is happening at the moment. That is why a company can increase profits by 20 per cent but still have its stock price fall - investors may have been expecting 30 per cent - and so they sell the stock on the disappointing news.

The same thing applies to inflation and interest rates. Investors will often buy and sell investments based on their expectations of what is going to happen in the future with interest rates and the rate of inflation. That is why it can be harder for smaller, less informed investors. They may not have access to the information and analysis that larger investors have.

In conclusion, we'd like to put in a little pitch for economic education. Financial education and financial literacy are important - but so is economic education we believe. For example, a person can learn what a mortgage is but, without some economic understanding to be able to have a sense of what is happening with interest rates - and what may happen in the future - it is very difficult to make some of the important mortgage decisions. That is why some Canadians back in the 1980s locked into mortgages for five years at 22 per cent. A little economic education would have enabled them to know that such rates were not sustainable and that they were being used to bring down the rate of inflation.

More on mortgages

Protecting a mortgage: Marissa and Marcello's story

Three ways to create income from a reverse mortgage

Should I buy a home now, or wait and save more money?

What does it really cost to borrow?

Therefore, with all the talk of financial education and financial literacy these days, we would also like to put in a word on behalf of the importance of economic education. To build a successful economic life, one faces many decisions that can be improved with a little economic understanding stirred in. It isn`t all that hard - and we hope that similar efforts are undertaken to improve economic literacy to help Canadians with the challenges of building a better future - for themselves, for their families, their communities - and this country.

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How interest rates affect your investments

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Gary Rabbior is the president of the Canadian Foundation for Economic Education. This is the last of a six-part series on understanding how the economy works and why it matters to investors. To understand why investors should care about how Canada's money is managed, there are a number of key things to note.

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In this picture, factors influencing Interest Rates are broken down into three main categories: supply and demand, monetary policy, and inflation.

I chose this picture because it looks like a padlet wall, much similar to what this assignment is about; it is also very well explained, in a simple manner, what are some factors influencing fluctuations in Interest Rates. Differently from the image above, where it only gave us key words/topics, this image provides a little more information about the subject.

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In this image, it is possible to see the main factors that influence Interest Rate; the image calls for 26, but only 12 are being displayed. Credit Score/History are among the first two factors, which is confirmed by almost every website/video mentioning it being one of the most important factors when determining Interest Rates.

I chose this picture because Interest Rate is a topic that can be very difficult to understand to some people; by looking at a picture that breaks down some factors that influence Interest Rates in a simpler way, it makes is easier and more interesting way to learn.

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I chose this article by The Star because it talks about how the Bank of Canada increased Interest Rates on the year of 2017. The article explains that the decision of the Bank to increase Interest Rates comes from an economical growth, with more people applying for loans, mortgages, etc., so this way they would take an advantage of that boost of money to the Economy and increase the Interest Rates; accordingly, all associated banks - such as TD Bank, Scotiabank, RSBC, etc - also increased their "prime rates", which are also related to mortgages and loans. Another reason why the Bank of Canada decided to increase the Interest Rates was because of uncertainty regarding USA's political matters.

I chose this article because it mention a common factor in Interest Rates' changes: economy. At this point it is clear that minor changes in the economy can cause a big impact in loans and mortgages, and the people can end up paying a steep price because of that.

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The Bank of Canada raised its key interest rate Wednesday for the first time since September 2010, but said there is "no predetermined path" for further increases and that rate policy would be examined on a quarter-by-quarter basis.

Bank of Canada Governor Stephen Poloz called the rate increase to 0.75 per cent, which will immediately impact adjustable-rate mortgages and home equity lines of credit, "a symptom" of a growing economy that is now expected to reach full capacity by the end of the year.

Soon after the announcement, Royal Bank of Canada, the Bank of Montreal, TD Bank, Scotiabank and CIBC all announced they were increasing their prime rates - the rate banks use to set interest rates for variable-rate mortgages and other loans - to 2.95 per cent from 2.7 per cent, effective Thursday.

Canada's central bank had cut interest rates in 2015 to help the economy navigate a plunge in oil prices, but Poloz said recently that those rate cuts had done their job.

On Wednesday, Poloz cautioned that forecasting any future rate trend is hampered by heightened geopolitical uncertainty for trade and investment due to such factors as U.S. policy under President Donald Trump and the outlook for world oil prices.

The bank must also consider any potentially negative impacts of rate hikes on the oil patch and on consumers, who Poloz called especially vulnerable due to historically high levels of household debt.

The bank said its new outlook for real GDP growth is 2.8 per cent for 2017 (up 0.2 of a percentage point from April), 2.0 per cent in 2018 (up 0.1 of a percentage point from April) and 1.6 per cent in 2019 (down 0.2 of a percentage point from April).

The hike comes as inflation remains below the central bank's target, although it said lower food prices, electricity rebates in Ontario and changes in automobile pricing are expected to fade.

The Bank of Canada said it expects inflation to return to its 2 per cent target by mid-2018. Inflation is expected to average below 2 per cent this year and next, and reach 2.1 per cent by 2019, slightly above target.

"We need to be targeting inflation in the future (since) any action we take is only going to have its full effect in 18 to 24 months," Poloz said.

"Growth is broadening across industries and regions and therefore becoming more sustainable," the bank's governing council added in a statement. "As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding."

Jean-Paul Lam, an associate professor of economics at the University of Waterloo and former assistant chief economist at the Bank of Canada, said that even with a rapidly growing economy and the labour market performing well "there is no urgency to raise interest rates.

"Inflation and inflation expectations remain well below their target of 2 per cent. There are risks to growth and inflation coming from potential trade barriers, geopolitical events and a U.S. economy that is facing slower growth due to the uncertainty coming from the Trump administration."

Arlene Kish, senior principal economist at IHS Global, said that although rates remain very low by historical standards, "diverse growth, the temporary pass through of weak inflation and the labour market slack absorption supports another increase in the overnight rate later this year, in October 2017."

And while there was no additional guidance on the timing of further rate hikes, the Bank of Canada said withdrawal of some of the monetary policy stimulus in the economy is now warranted. Kish noted that there was also no indication that the bank would pause.

The Bank of Canada's next rate announcement is set for Sept. 6.

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Bank of Canada hikes interest rate for first time in 7 years

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The Bank of Canada raised its key interest rate Wednesday for the first time since September 2010, but said there is "no predetermined path" for further increases and that rate policy would be examined on a quarter-by-quarter basis.

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This article from The Star is not about Canada - even though it is a Canadian newspaper - but about Europe and Japan, and their respective economies. Here the authors talk about how Europe and Japan have lowered their Interest Rates below zero - meaning, the Bank was paying their customers Interest Rates on their savings, instead of the opposite. This decision was made based on the uncertainty of spending habits that rose from the lockdown and quarantine caused by COVID-19. With the lower rates, the government expects people to spend and invest more money on stocks, which would in return increase the stock market values and benefit the Economy as a whole.

I chose this article first because it talks about the impact of lower Interest Rates, rather than higher ones which we see more often being talked about. Another reason why I chose this article is because it talks about the Economy in Europe and Japan, and we mostly see articles talking about the US Economy, so I thought it would be nice to have some other Countries' insights.

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FRANKFURT - Imagine a mortgage that pays you the interest, not the other way around. Or a savings account where it's the bank, not the saver, who collects interest.

Welcome to the upside-down world of ultra-low and negative interest rates that is taking hold in many parts of the world. Now more than a decade old, economists think it could be a feature of the global economy for years to come and change the way people save and invest.

"This will mean that we must save more, work longer, and expect less," said Olivia Mitchell, an economics professor at the Wharton Business School at the University of Pennsylvania.

The latest chapter is the drop in interest rates on some bank deposits below zero as central banks, particularly in Europe and Japan, try to support the economy amid uncertainty about trade by making borrowing cheaper to spur spending and investment. Economists think there are also longer-term factors causing low rates, such as aging populations in rich countries and high rates of savings in China and other emerging economies.

Low rates first hit in the wake of the global financial crisis. The U.S. Federal Reserve, Bank of England, Bank of Japan, and European Central Bank slashed rates close to zero. In 2014, the ECB went negative.

Ultra-low rates have helped push up stock markets to record highs, as vanishing returns on safe assets lead to a search for returns elsewhere. Pushing people to invest in riskier assets is part of the stimulus effect central banks are trying to impart. But there are also fears that very low rates can cause markets to bubble up, and crash back down with painful consequences. So far, the dire predictions haven't come true. The current bull market in U.S. stocks turns 11 years old on March 9.

In Germany, some banks are now telling companies and others with large amounts of cash that they must pay a rate on large deposits instead of accruing interest. The penalty typically applies to big accounts, such as more than 500,000 euros ($555,000), according to financial website Biallo.de. Banks are doing this because they themselves have to pay a 0.5% penalty on deposits they hold at the European Central Bank. If banks can't find a home for depositor money, it winds up in their ECB holdings and results in their being charged.

Small depositors like individual consumers are so far not being charged on savings. The idea is politically toxic, especially in Germany.

But the low rate environment raises questions about preserving wealth, especially for those trying to save for retirement. German newsmedia are full of stories about "penalty rates"and criticism of the European Central Bank for, as they put it, expropriating savers.

Gerhard Michel, a financial coach in Duesseldorf, says people need to be aware that inflation eats away at savings even in more normal times, though people may be less aware of it when rates are above zero.

"If you look at it historically, people with savings accounts never had any kind of interesting performance," he said. "The inflation rate ruins any returns on the government bond market or the savings market - and it has always been that way historically. What shocks people now is that people must say the word zero, or even negative, interest."

Michel, who is 53, teaches his coachees about value investing, a more time-consuming approach that analyzes financial statements to look for companies the market may be underestimating.

His approach with his own money: "I will buy stocks until the end of my days."

Four trillion euros worth of government bonds of the 19 countries that use the euro now yield less than zero. Trillions more in Japanese and other government bonds trade below zero around the world. Even Greece, which defaulted on government bonds in 2012 and carries the highest debt load in Europe, was able to sell three-month notes at a negative rate.

Why, in fact, would anyone pay for the privilege of buying a bond?

One way of viewing the phenomenon is that the investor is paying for the safety of the investment. Or buyers may hope to sell the bond at a profit. That is possible if rates go even lower - as some analysts think they will.

On the positive side of the ledger, low or negative interest rates can make it easier for companies and consumers to borrow, stimulating economic activity. The European Central Bank says its policies created 11 million new jobs since 2013. In the U.S., home sales have picked up as mortgage rates have fallen to 3.7%.

Now, even some home buyers can get into the negative rates game.

Denmark's Jyske Bank offers a minus 0.5% interest mortgage while still making a profit. Customers must make monthly principal payments, but the sum they owe is whittled down month by month by the negative rate over the life of the mortgage. The bank is able to fund the mortgage by selling a bond at minus 0.5%, passing the rate to the customer, and making money on modest mortgage fees.

The Danish bank is unusual in offering the negative rate, but mortgage rates for credit-worthy borrowers are also not far above zero in Germany. For instance, a 10-year mortgage with a large down payment can carry interest of only 0.7%.

It's worth noting that real interest rates - in other words, when official and market rates are below the rate of inflation - have been negative at several points in history, such as in the 1970s, when inflation in the developed world ran into double digits.

What's unusual today is that the actual quoted rates are below zero and that rates have been low for so long.

Interest rates are always a tradeoff, says economist Adalbert Winkler, professor of international and development finance at the Frankfurt School of Finance & Management. "Low real rates favour borrowers like mortgage holders at the expense of savers, and when rates rise it's the other way around."

"This is always the case when you have expansionary monetary policy and it doesn't make sense to deny that," he said.

Low rates make it easier for governments to borrow and build infrastructure that can spur economic growth, although political pressures have meant that Europe's biggest economy, Germany, prefers to balance its budget than borrow. Other governments, such as Italy, are constrained by high debt.

Negative rates have not yet appeared in the United States, but they could if the economy stumbles into recession, some economists say. The Federal Reserve would almost certainly cut the short-term rate to nearly zero, as it did for seven years beginning in the Great Recession.

Since the U.S. 10-year yield is already very low by historical standards, at 1.6%, it wouldn't take much to push it below zero, said Ryan Sweet, senior economist at Moody's Analytics. The Fed may try to prevent it from happening, possibly by selling Treasuries, but it's not clear they would succeed.

"We're not immune to it," he said. "That's a kind of Alice in Wonderland-type world that we don't want to go into."

So far, Federal Reserve officials have downplayed the potential for negative rates in the U.S.

"That's not a tool we're looking at," Federal Reserve Chair Jerome Powell said Tuesday during a congressional hearing. He cited research that negative rates can hurt banks' profits and restrain their willingness to lend.

The German Economic Institute in Cologne studied multiple factors believed to cause low rates and concluded it's not just due to central banks but represents a longer-term trend. So low or negative rates could be around for years.

With that in mind, Mitchell, the professor, persuaded her two daughters to save 18% of their salaries when they found their first jobs.

"We're in a very different capital market regime now than in the last 30 years," she said.

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Rugaber reported from Washington.

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Negative interest rates turn saving, borrowing upside down

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FRANKFURT - Imagine a mortgage that pays you the interest, not the other way around. Or a savings account where it's the bank, not the saver, who collects interest. Welcome to the upside-down world of ultra-low and negative interest rates that is taking hold in many parts of the world.

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Welcome to my padlet! Here I shared some important and interesting information about Interest Rates - and some factors that influence them. The articles, videos and images posted here will (hopefully) explain in a simplified manner how economy affects Interest Rates, and also some tips on when to save money and when to spend it!

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This is an article posted by the Government of the United States. In this article, Nicole Shea talks about seven factors that influence Interest Rates. In summary, Nicole explains that Credit Score, Home Location, Home Prices and Loan Amount, Down Payment, Loan Term, Interest Rate Type, and Loan Type are all factors that should be taken into consideration before making any decisions such as taking a loan or applying for a mortgage. Nicole also mentions "points" and "lender credits" that are offered by agencies when you are closing a deal; these terms refer to discounts that can be applied to either your interest rate or total cost of loan/mortgage, which benefit both the lender and the buyer.

I chose this article because it was from a very reliable source, and second because it mentioned more than a couple factors that influence Interest Rates changes, when most articles only mention inflation, for example.

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Your lender knows how your interest rate gets determined, and we think you should, too. Our Explore Interest Rates tool lets you plug in some of the factors that affect your interest rate. You can see what rates you might expect-and how changes in these factors may affect interest rates for different types of loans in your area.
Even saving a fraction of a percent on your interest rate can save you thousands of dollars over the life of your mortgage loan, so it definitely pays to prepare, shop around, and compare offers.

Armed with information, you can have confident conversations with lenders, ask questions, and understand your loan choices. Interest rates, just like gasoline prices, can fluctuate from day to day and from year to year. While movement in the interest rate market is outside of your control, it makes sense-just like with gasoline prices-to gain awareness about what's typical. This way, you'll have a sense of whether an interest rate quote you receive appears to be in the range of typical rates, or if you should ask more questions and continue to shop around.

Here are seven key factors that affect your interest rate that you should know

1. Credit scores

Your credit score is one factor that can affect your interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Lenders use your credit scores to predict how reliable you'll be in paying your loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history.

Before you start mortgage shopping, your first step should be to check your credit, and review your credit reports for errors. If you find any errors, dispute them with the credit reporting company. An error on your credit report can lead to a lower score, which can prevent you from qualifying for better loan rates and terms. It can take some time to resolve errors on your credit reports, so check your credit early in the process.

Enter your credit score range into our Explore Interest Rates tool to get information on the rates available to you. If you don't know your credit scores, there are many ways to get it.

You can also experiment with the tool to see how you might save more on your mortgage interest rate with higher credit scores. Learn more about things you can do to raise your credit scores.

2. Home location

Many lenders offer slightly different interest rates depending on what state you live in. To get the most accurate rates using our Explore Interest Rates tool, you'll need to put in your state, and depending on your loan amount and loan type, your county as well.

If you are looking to buy in a rural area, our Explore Interest Rates tool will help you get a sense of rates available to you, but you'll want to shop around with multiple lenders, including local lenders. Different lending institutions can offer different loan products and rates. Regardless of whether you are looking to buy in a rural or urban area, talking to multiple lenders will help you understand all of the options available to you.

3. Home price and loan amount

Homebuyers can pay higher interest rates on loans that are particularly small or large. The amount you'll need to borrow for your mortgage loan is the home price plus closing costs minus your down payment. Depending on your circumstances or mortgage loan type, your closing costs and mortgage insurance may be included in the amount of your mortgage loan, too.

If you've already started shopping for homes, you may have an idea of the price range of the home you hope to buy. If you're just getting started, real estate websites can help you get a sense of typical prices in the neighborhoods you're interested in.

Enter different home prices and down payment information into the Explore Interest Rates tool to see how it affects interest rates in your area.

4. Down payment

In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can comfortably put 20 percent or more down, do it-you'll usually get a lower interest rate.

If you cannot make a down payment of 20 percent or more, lenders will usually require you to purchase mortgage insurance, sometimes known as private mortgage insurance (PMI). Mortgage insurance, which protects the lender in the event a borrower stops paying their loan, adds to the overall cost of your monthly mortgage loan payment.

As you explore potential interest rates, you may find that you could be offered a slightly lower interest rate with a down payment just under 20 percent, compared with one of 20 percent or higher. That's because you're paying mortgage insurance-which lowers the risk for your lender.

It's important to keep in mind the overall cost of a mortgage. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you'll get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you'll need to make the additional monthly mortgage insurance payments. That's why it's important to look at your total cost to borrow, rather than just the interest rate.

Make sure you are factoring in all of the costs of your loan when you are shopping around to avoid any costly surprises. You can use our Explore Interest Rates tool to see how different down payment amounts will affect both your mortgage interest rate and the amount of interest you'll pay over the life of the loan.

5. Loan term

The term, or duration, of your loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. A lot depends on the specifics-exactly how much lower the amount you'll pay in interest and how much higher the monthly payments could be depends on the length of the loans you're looking at as well as the interest rate.

Learn more about your loan term, and then try out different choices with our Explore Interest Rates tool to see how the length and rate of your loan would affect your interest costs.

6. Interest rate type

Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don't change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.

Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly later on. Learn more about interest rate types and then use our Explore Interest Rates tool to see how this choice affects interest rates.

7. Loan type

There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose. Talking to multiple lenders can help you better understand all of the options available to you.

Learn more about the different types of mortgage loans in our "Buying a House" tool.

One more thing to consider: The trade-off between points and interest rates
Generally, points and lender credits let you make tradeoffs in how you pay for your mortgage and closing costs.

Points, also known as discount points, lower your interest rate in exchange for an upfront fee. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be a good choice for someone who knows they will keep the loan for a long time.

Lender credits might lower your closing costs in exchange for a higher interest rate. You pay a higher interest rate and the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate. Keep in mind that some lenders may also offer lender credits that are unconnected to the interest rate you pay-for example, a temporary offer, or to compensate for a problem.

As you shop for a mortgage, you'll see that lenders also offer different interest rates on loans with different "points."

1. You can decide you don't want to pay or receive points at all.

2. You can pay points at closing to receive a lower interest rate.

3. You can choose to have lender credits and use them to cover some of your closing costs but pay a higher rate.

There are three main choices you can make about points and lender credits:

Learn more about evaluating these options to see if points or credits are the right choice based on your goals and financial situation.

Now you know

It's not just one of these factors-it's the combination-that together determine your interest rate. Everyone's situation is different, which is why you can use our Explore Interest Rates tool to see what you can expect based on your personal factors.

By understanding these factors, you'll be well on your way to shopping for the right mortgage loan-and interest rate-for you and your situation. Not all of these factors are within your control. But understanding how your mortgage interest rate is determined will help you be more informed as you shop for a mortgage.

Use the Explore Interest Rates tool to help you decide what's right for you.

As you consider your budget and make decisions about things like your down payment amount and home price, check the Explore Interest Rates tool often. The more you know, the more accurate the rates will be.

As you start talking to lenders, compare their offers to the rates in the tool-and to offers from other lenders-to see if you are getting a good deal and to help negotiate the best deal for you.

Just remember:

We've got a lot of information to help you get started

Get a copy of Your Home Loan toolkit for an overview of the process and some tools to help you define what affordable means to you.

Visit Owning a Home to help you navigate the process from shopping for a mortgage all the way to closing.

Check out Ask CFPB, our database of common financial questions.

Editor's note: This post was originally published on January 20, 2015. We've updated it to provide more comprehensive information and to include updated links to our Owning a Home tools and resources.
If you've decided now is the right time to buy, our tools and resources can help you get started.

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Seven factors that determine your mortgage interest rate | Consumer Financial Protection Bureau

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Your lender knows how your interest rate gets determined, and we think you should, too. Our Explore Interest Rates tool lets you plug in some of the factors that affect your interest rate. You can see what rates you might expect-and how changes in these factors may affect interest rates for different types of loans in your area.

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1- What did you learn about your topic that surprised you the most?
I did not know that so many things could impact Interest Rates; I assumed only the Economy as a whole played a role in deciding that, but I was surprised to discover that individual - such as Credit Score - are also very important, and will determine how much more or less you will pay on the same thing as someone else.

2- Provide a real-life example of how this topic is relevant or interesting for you.
After doing this assignment, I have learned a lot more about Interest Rates, which will help me in the future when I take a loan for a car or a mortgage, for example. I know that it is important to start creating a good Credit Score now, because it will have a huge impact in the future. I also know now that is not wise to take on loans when the Economy is not good (when the inflation is high), because I will end up paying more Interest Rates than usually.

3- If you could pass on your knowledge to a family member or a friend, what do you think is the most important thing to pass on?
If I could pass on the knowledge that I learned by doing this assignment to members of my family, or even friends, is to research well before doing any investments or taking any loans; research how the Economy is at the moment, if there are plans for the inflation to go up or down, and if they have a good Credit Score before taking any decisions.

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In this video by Optimal Homes, Karan Singh talks about four factors that influence Interest Rates when you are buying a house.The first topic is Property Use; basically, what is your intention when buying a house. Do you intend to buy it for you to live in, or rent it out? The second topic is Impounds; is the buyer going to pay for the taxes and insurance on their own, or are they splitting it with the seller/lender? The third topic is Credit Score; the better your Credit Score, the better deals on Interest Rates you will get and vice-versa. The fourth and final topic is Loan to Value; this is basically how much down payment you are willing to pay - the more you pay in advance, the lower your rates are going to be.

I chose this video because I liked the way Karan presented the factors - in a whiteboard; he also talked about factors that were not mentioned before in this Padlet.

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In this video by Khan Academy, they basically explain how Interest Rates are the price of "renting money", and what happens to those rates when Economy changes. One good example mentioned in this video is how supply and demand works. In a first scenario, when the Government is printing and lending more money, the supply of money increases, which results in lower Interest Rates. On a second scenario, when consumers start saving less money, they also stop taking loans, which means that Interest Rates now go up, as well as demand for money also goes up. In the third and final scenario, the Government borrows money; in this case, the supply for money is not going to change, assuming that the same amount of money is still being printed, but the demand is going to increase, since there will be less money available. This results in spike of Interest Rates.

What I liked about this video is that the person narrating is also drawing on a black board at the same time, using simple graphs that help understanding the subject being talked about - Interest Rates.

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Money supply and demand impacting interest rates | Macroeconomics | Khan Academy

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In this video by "Your Loan Superhero", Kristi Nowrouzi talks about the major factors that influence a person's Interest Rate. Kristi says something very interesting which is "there is not an easy answer when people ask what the Interest Rate of a company is"; according to her, there are several factors to take into consideration when determining one's Mortgage's Interest Rate. One of them is the "Type of Mortgage Program": if it is a government loan, it is going to offer lower Interest Rates than a conventional loan. Another factor is the "Loan to Value", or how much money you are borrowing versus the purchase price of a property; the lower amount of money you borrow to pay off a property, the lower Interest Rates you will have. The last factor is Credit Score; as mentioned several times already in this Padlet, Credit Score plays a big role when determining one's Interest Rates. The higher the Credit Score, the lower the Interest Rates, and vice-versa. It is very important to ensure the highest possible Credit Score, to ensure not only low Interest Rates on Mortgages, but also on car and tuition loans.

What I liked most about this video is that Kristi is a Mortgage Loan Officer, so I felt like she was talking directly to me and analyzing my options, even though I have never applied for a loan.