Lenders calculate mortgage interest rates on three major factors - down payment, credit history and the current economic market. Sometimes your rate is negotiable, and other times you may just have to settle for a higher interest rate. Keep reading to learn why your interest rate is high and how you can reduce it in the future.

Why is my mortgage interest rate high?

1. Low Down Payment

Typically, the lower the down payment, the higher the interest rate that will be required of the lender. If you can walk into a lender's office with an amazing down payment of 20 percent, you won't have to pay mortgage insurance, and you'll be in a much better position to negotiate a lower interest rate. A slightly lower rate may not sound like much on the surface, but the difference over the live of a loan can be tens of thousands of dollars in savings!

The inverse is also true, though, about the amount of a down payment. A low down payment of 5 percent will mean you'll have to pay for mortgage insurance and you'll be given that higher rate.

2. Poor Credit Rating

Lenders base the bulk of their lending decisions on your credit report and score. If you're a high-risk borrower, meaning you have a history of not paying your debts on time or you have credit delinquency, you'll either be denied a loan altogether or offered a much higher interest rate.

Because lenders see you as a greater risk, they are essentially 'hedging' their bets by increasing your interest rate. If your credit's poor, you may have to settle for a higher rate. To improve your credit, take at least a year (two is better) and focus on paying every existing bill on time every time. Within 12-24 months, your credit will improve, and so will your offered interest rate.

3. Economic Markets

Lenders base their interest rates on an economic index or standard. In the United States, lenders use the Cost of Funds Index (COFI), London Interbank Offered Rate (LIBOR), 12-Month Treasury Average (MTA), Bank Bill Swap Rate (BBSR), Constant Maturity Treasury (CMT) and the National Average Contract Mortgage Rate upon which to base their interest rates.

If market interest rates are high, then the rates offered by lenders are also going to be high. If you're facing an economy with high interest rates, you may want to wait until rates lower again before shopping for a home mortgage. Doing so may not get you out of a rental situation as quickly as you'd prefer, but the money you save through patience may make biting the bullet worth the wait.

How can I get a better rate in the future?

It may be possible to renegotiate or refinance your mortgage at a later date. Once your credit has improved, built up equity in your home, and interest rates have declined, you can shop around for lower rates. Interest rates constantly fluctuate, so don't become overly anxious and consequently jump into a mortgage pre-maturely.

Basically, refinancing or renegotiating a mortgage means you pay off your old loan and sign for a new loan. You can either do this with your existing mortgage provider or shop for a new one. If you move to a different lender, you may have to pay an early payment penalty. Investigate this before making your move.