When you use someone else’s property, you pay for its use. This is called rent. People rent everything from apartments to cars to carpet cleaners. The longer you use whatever you are renting, the more you have to pay. When you want to buy a house and do not want to, or do not have enough money to, pay cash, you basically have to rent the needed money. The rent you pay for the use of this money is called interest.
Interest rates are determined by some factors over which you have no control, as well as some that you can control. The rates set by the Federal Reserve that affect mortgage interest rates, for example, are beyond your control. Factors you can control that influence interest rates include the type of loan (fixed rate, adjustable, or hybrid), the term (length) of the loan, your credit score, your down payment, and the loan-to-value ratio. You can also take some steps to lower your interest rate by buying down your rate.