There are many factors that affect the interest rate on a mortgage. Some of these factors may be under the control of the borrower, while some are not under the direct control of the borrower.

One of the basic factors that affect the interest rate of mortgages is the discount rate of the Federal Reserve. The Federal Reserve changes this rate according to the compulsions of the economy and also in response to government policies. When the Federal Reserve changes the discount rate, it affects the rate at which it offers short term loans to other banks. Therefore the final interest rate that banks charge depends on the Federal discount rate. Therefore, when it comes to the borrower, there are many factors that affect the rate. Interest that is charged on loans may fluctuate during the period of the loan.

Another factor that affects the interest rate of a loan, but which can be controlled by the borrower, is the FICO score. The FICO score is essentially the credit history of the borrower that is condensed into a single number. Companies called Consumer Reporting Agencies (CRAs) gather and sell information about where a borrower works and lives, how he or she pays bills, and whether they have been involved in legal cases related to financial issues. Potential lenders can access one's credit report from such agencies that rate customers based on the FICO score. Therefore it is essential that one has a good FICO score in order to avail a better mortgage offer from a mortgage company.

There are also other factors such as competition that affect the rates at which lenders charge borrowers. For example, competition may be an important factor that determines the rate of interest of a loan. Higher competition may coax lenders to offer a loan at a lower rate. Therefore it is a good practice to shop around for loans before one finalizes a particular loan product.