What Determines 30-Year Fixed Mortgage Rates?
Interest rates on 30-year fixed mortgages are driven by 1-year, 5-year, and 10-year Treasury Note yields, which are auctioned to the highest bidder. At the end of the note’s term, the U.S. Government pays back full face value to the bidder, so in effect, bidders are loaning the bid amount to the U.S. Government. In return, they get the interest rate and the full face value on the note. As a result, the interest rate on a 30-year fixed mortgage is usually just slightly higher than that of the 30-year Treasury Bond at the time the mortgage is issued. Thanks to low rates on Treasury Bonds, the interest rates on 30-year fixed-rate mortgages have been below 7 percent since March 2002, and have dropped even lower in 2009, averaging between 4 and 6 percent.
