Mortgage is a conveyance of an interest in property as security for the repayment of money borrowed. It is a loan for buying a property or meeting financial requirements. It involves the payment of interest by the borrower to the lender.

Interest can be either adjustable or fixed. In Fixed rate mortgage, for the entire period of time, the rate remains constant. It can be paid on monthly basis. Monthly payments are predictable since there are no fluctuations in the rates. It is not dependent on the market interest rates. Any rise and fall in the interest rates will not affect the fixed rate mortgage. Long-term loans tend to be at higher rate compared to short-term loans.

An Adjustable or variable rate mortgage plan has a variable interest changing over time as per the interest rates. It is linked to factors like Prime rate. When irregular interest rates make fixed rate loans difficult to obtain, variable rate mortgage plan can be used. The borrower loses if the rate increases and benefits if decreases. The basic features of adjustable rate mortgage are the initial interest rate, conversion, the adjustment period, the index rate, the margin, negative amortization, interest rate caps, initial discounts and prepayment. It permits borrowers to lower the initial payments if they are assuming risk of interest rate changes. A capped interest rate is a provision of an adjustable rate mortgage confining how much interest rate may increase in a single adjustment. Irrespective of the changes in Prime rate, it cannot exceed a preset amount.

There are many factors affecting mortgage interest rates. The main principle changing the direction of rates is supply and demand. Lenders raise the price on their loans when the demand is high. They can do this because they have many consumers competing for mortgage credits. They lower the price for few mortgage applicants looking for home loan credits.

While applying for a mortgage loan, many lenders give the chance to lock in your interest rate. This means a specific amount is set for a specific period of time. Rate lock-ins can vary from lender to lender, but distinctive time frames are 30-60 days. The interest rate will not increase during this period. The longer the rate lock period, the more the fee will be. If the rate lock expires before closing the loan, higher interest rates have to be paid. The best way is to have a written document from the lenders to know all the terms and agreements concerning the rate lock.