ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

Applying for a Loan

How do lenders determine the interest rate?

Interest rates for home loans are determined by the overall market in interest rates. Home loan rates are very interest-sensitive; when rates are rising, they are among the first to go up, although when rates are declining, they are usually the last to be lowered. This is because most home loans are made at a fixed rate for a fairly long term (fifteen to thirty years), during which time interest rates may increase substantially. Thus, lenders attempt to protect themselves from making too many long-term loans at low rates by taking a slow approach to reducing interest rates. These rates can and will rise very quickly, however, if the prevailing trend changes and other interest rates begin to escalate. Present mortgage rates are easy to find on the Internet.