How are mortgage rates determined?

Mortgage rates follow the bond market. The interest rate on a 30-year fixed-rate mortgage tracks the yield on the 10-year Treasury note (Monday 4.15% as of this post.). Lenders typically set their base mortgage rate around two percentage points higher than the 10-year bond yield. Rates on adjustable-rate mortgages are tied to yields on two-, three- and five-year Treasurys. These short-term loans are more sensitive to Fed rate movements, and those with the shortest maturities see the greatest impact when short-term rates rise and fall. So if you want to know the direction of mortgage rates, you need to get a sense of where bond yields are heading. Investors tend to flock to the safety of U.S. Treasurys when they’re worried about the state of the economy. That "flight to quality" drives bond prices higher and their yields lower. Keep this in mind if you want a quick reference for where rates are without having to call your broker to ask " What are your rates?" Now there are a lot of variables to consider, Loan-to-Value, type of property, when determining your actual rate but this is a good starting point if you know your income and credit are well qualified.