Whether borrowing money for a new 1st mortgage, a new 2nd mortgage (home equity loan or home equity line of credit), refinancing your existing loan, or for debt consolidation, there is almost always going to be an interest rate involved.

You can think about the interest rate as a percentage of the money borrowed to be paid. The best way to compare mortgage loans is by comparing the Annual Percentage Rate, or APR on each prospective loan offer.

By law, every mortgage loan offer, usually in the form of a disclosure called a Good Faith Estimate, must disclose APR associated with the loan. When we talk about real estate loans, interest rates are also sometimes referred to as mortgage rates.

Banks, credit unions, and other mortgage lenders determine the rates at which they lend money; however, that rate is often influenced by how much they paid to borrow it in the first place. Like a person that borrows money for a mortgage, lenders pay interest for the money they themselves borrow in order to lend. The financial institutions' cost of funds can be indexed to certain popularly followed interest rates. These can be the Prime Rate [the rate that banks use to lend to their best customers], the COFI [The 11th District Cost of Funds Index, which is a weighted average of savings and deposit rates], and the LIBOR [London Interbank Offer Rate], which is the rate at which banks lend to each other overseas in dollar terms.

If your mortgage is a variable mortgage, it's important to know which interest rate it is tied to, as this could have a huge impact on your payments down the line.

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