The initial interest rate is the original rate that you get when you buy a house and will impact the rest of your mortgage. It is the amount of interest that you have to pay based on the amount that you still owe with each payment. This rate is set by your lender, which could be a bank or an outside mortgage lender, and has to be be approved based on the current market. What this means is that your first payments will be mostly interest and not principle. For example, you could end up paying 80 percent toward your interest and only 20 percent toward your principle since the interest is factored based on the total amount that you still owe. As you work through the mortgage, those percentages will swing. Your last payment will be mostly principle and very slightly based on the interest rate. Refinancing is a good way to change your initial interest rate.