If you’re a first time home buyer and have never been involved with a mortgage before, you certainly want to learn all you can about financing options and the terms of your home loan. Your mortgage interest rate is one important factor that can help you decide which lender to choose to handle your loan, but you need to understand how this figure is calculated to weigh your options. Have a look at these mortgage rate basics to guide your decision making.

Your Credit Score: Your credit rating is a number that lenders look at to determine how reliable you’ll be in repaying your mortgage. In general, you can obtain a lower mortgage interest rate the higher your credit score. Potential home buyers should obtain a copy of their credit report before house hunting. You can fix any errors or repair negative credit history before the lender sees problems.

Your New Home’s Location: Your interest rate may depend upon where your new home is located, as rates can vary from state to state. In addition, there may be slight differences in mortgage rates in urban areas versus rural locations. It’s smart to look for lenders in the area near your new place to compare rates, so you can choose the best financial option.

The Loan Term: The amount of time you have to pay your mortgage is known as the “term.” There are options ranging from 15 years and more; 20 and 30 year loans are most common, but some banks will offer up to 40 years. Usually, the shorter the term, the lower the interest rate and costs. However, monthly payments are typically higher for shorter term loans.

Your Down Payment Amount: If you pay a high down payment relative to the property’s value, you may be entitled to a lower mortgage rate. This is because banks view a large down payment as less risky in terms of default. Many experts will encourage you to save as much as you can for a down payment to reduce your interest rate.

Interest Rate & Loan Type: There are two types of mortgage rates for home buyers: fixed and adjustable. A fixed rate will not change for the life of the loan, regardless of economic conditions. An adjustable interest rate will initially be fixed for a certain time, and then fluctuate based on the market. You’re more likely to get a lower initial interest rate with an adjustable. However, the rate may increase significantly in the future, so it can be unpredictable.

Home Price & Loan Amount: The amount of money you borrow and the price you pay for your new home will both impact your interest rate. Your mortgage will be the price of the home minus your down payment, so the interest is applied to that amount. If you borrow a particularly large amount, you might see a higher interest rate apply.

Even people who have purchased a home before can feel overwhelmed when it comes to choosing a lender for their mortgage. It’s important to understand what factors impact your mortgage rate as you’re comparing different lenders to find the best fit. You might consider working with a mortgage equity expert to help you make the right decision.