• A lower mortgage rate can save you money.roosevelts home image by Photoeyes from Fotolia.com
  
  When buying a home, most people have to take out a loan called a mortgage to pay for most of the cost. The mortgage is a secured loan that uses the house as collateral, which means the bank can seize the home if you don't pay back the mortgage. The interest rate on the mortgage is affected by some factors you can control and others that you cannot.
  
  

Credit Score

• Your credit score is a number between 300 and 850 that represents how credit worthy you are. It is used to judge how likely you are to repay your mortgage. The score is calculated using an algorithm that takes into consideration your past experience with handling debt. According to Kiplinger, the best interest rates go to people with credit scores of at least 760. According to Bankrate, if you have a credit score below 620, lenders will usually classify you as a subprime borrower, which means your interest rate will be much higher because you are a riskier borrower.
  
  

Debt-to-Income Ratio

• Lenders compare the mortgage expenses to your total income to determine what percent of your income goes toward your mortgage and what percentage goes toward all of your debt payments put together. According to Bankrate, lenders prefer that your mortgage expenses take up no more than 28 percent of your monthly income and your total debt payments take up no more than 36 percent of your income. If your ratios are higher, lenders may still be willing to issue you a mortgage, but will most likely will charge you a higher interest rate.
  
  

Market Rate

• The higher the market rate, the higher your mortgage rate. Market rates are affected by inflation and the returns being generated by other investments such as treasury bills and stocks. When these investments earn higher rates of return, banks have less money to lend so they will charge a higher interest rate on mortgages.
  
  

Mortgage Terms

• When you take out a mortgage, the size and term of the mortgage affect the interest rate you are charged by the lender. The larger the loan, the higher the rate will be. In addition, if your mortgage exceeds the size allowed by the conforming loan limits, you will have to pay a higher interest rate because the bank will not be able to get the mortgage backed by Fannie Mae. The conforming loan limits adjust each year and vary based on where you live in the country. The longer the term of your loan, the higher the interest rate will be because of the increased uncertainty the lender accepts.