If you’re like most people, you want to get the lowest interest rate that you can find on your mortgage loan. But how is your interest rate determined? That can be difficult to figure out for even the savviest of mortgage shoppers.

Your lender knows how your interest rate gets determined, and we think you should, too. That’s why we’ve created a new interactive tool that lets you explore the factors that affect your interest rate and see what rates you can expect.

Armed with information, you can have confident conversations with lenders and ask questions to make sure you get a good deal. Here are seven key factors that affect your interest rate that you should know:

1. Credit score

Your credit score is a number that lenders use to help predict how reliable you’ll be in paying off your loan. Your credit score is calculated from your credit report, which shows all your loans and credit cards and your payment history on each one. In general, if you have a higher credit score, you’ll be able to get a lower interest rate. You can use our tool to explore how your credit score impacts the rates available.

Before you start mortgage shopping, get your credit report. Check for errors, and make sure to get them fixed. Examine your debts, and see if there are any you can pay down to improve your score. Learn more about how to raise your score.

Credit scoring is complicated—in fact, you have many credit scores, not just one. You can learn more about how mortgage lenders evaluate your credit history and use credit scores.

It’s a good idea to try to get a sense of your credit score range before you start mortgage shopping. Once you have an idea of your credit score range, put it into our tool to get more accurate rates.

2. Home location

Many lenders have slightly different pricing depending on what state you live in, so to get the most accurate rates using our tool, you’ll need to put in your state. If you live in a rural area, you can use our tool to get a sense of rates for your situation, but you’ll want to shop around with local lenders as well. Making a loan in a rural area can be more complicated, so large lenders may not serve that area.

3. Home price and loan amount

Your home price minus your down payment is the amount you’ll have to borrow for your mortgage loan. Typically, you’ll pay a higher interest rate on that loan if you’re taking out a particularly small or particularly large loan.

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.

4. Down payment

In general, a higher 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 put 20 percent or more down, do it—you’ll usually get a lower interest rate.

If you can’t afford 20 percent down, experiment to see how lower amounts affect your rate.

5. Loan term

The term 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. Learn more about your loan term, and then try out different choices with our tool to see how your term affects your rate and 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 have an initial fixed period, after which they go up or down based on the market.

In general, you can get a lower initial interest rate with an adjustable-rate loan, but that rate might increase significantly later on. Learn more about interest rate types, and then use the tool to see how this choice affects interest rates.

7. Loan type

There are several broad categories of loans, known as conventional, FHA, and VA loans. Rates can be significantly different depending on what loan type you choose. You can learn more about the different loan types in our Owning a Home loan options guide.

Now you know

That’s it—know these seven factors and you’ll be well on your way to getting a great interest rate for your situation. And just remember:

  • You don’t need to have all seven of these factors decided before experimenting in our tool.
  • As you consider your budget and learn more about your options, come back 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 to see if you are getting a good deal.

Now go forth and find a great mortgage rate!

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