Time Frame

Interest rates are stated per year but are compounded monthly, meaning that the interest that accrues will be added to the amount you owe after each month.

Interest Rate vs. APY

The interest rate is the percentage that will be used to calculate the interest that accrues on your loan. The annual percentage yield represents the total cost of the loan, taking into consideration both the interest on the loan and the closing costs that are paid to the bank when you take out the mortgage. The APY is significant because some lenders may offer a low interest rate to lure in borrowers but significantly raise the closing costs so the mortgage actually costs more than another lender with a higher interest rate.

Secured Loans

Home loans have some of the lowest interest rates available because the loan is secured by your home. If you fail to repay your mortgage, the lender can seize your home as repayment.

Factors

Lenders look at how much you are borrowing, your credit score, employment situation and debt-to-income ratios.

Credit Score

A good credit score--above 760--will usually yield the best rates, according to Bankrate. If you have a credit score below 600, you will pay a significantly higher interest rate.

Source:

Bankrate: How Lenders Set Rates

Bankrate: How Credit Scores Affect Mortgage Rates