Aside from the credit worthiness of the borrower, how do mortgage lenders determine their benchmark mortgage lending rate? Does it correlate directly to a US Government security like the 30Y Treasury Bond?

2 Answers 2


Mortgage rates are determined in what is known as the "TBA" (to be announced) market. Most indices are in some way a function of the rate determined in this underlying market. From investopedia:

Pass-through securities issued by Freddie Mac, Fannie Mae and Ginnie Mae trade in the TBA market. The term TBA is derived from the fact that the actual mortgage-backed security that will be delivered to fulfill a TBA trade is not designated at the time the trade is made. The securities are "to be announced" 48 hours prior to the established trade settlement date.

The mortgage rates determined in this market do correlate rather closely to rates in the parallel Treasury market, as many TBA traders are active in both markets (usually for hedging duration, or overall interest rate risk, with Treasuries, in the case of mortgage traders) and most traders think of the market in terms of their "spread" over Treasuries (although there is no universal way to measure this spread, many models exist).


The rate for 30yr fixed loans tightly correlates to the ten year treasury. The difference between these two rates will change slightly depending on other factors in the market. In general, the spread is a bit over 2%.

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