[freddie_mercury]

Most of the other answers you got were wrong.

Mortgage rates are, mostly, driven by the market. The Federal Reserve influences the Federal Funds Rate (they don't "set it"; they set a target and then manipulate the market by buying & selling to try to reach that target). The FFR is just for overnight lending between massive institutions.

If your intuition says "hey, the difference between overnight lending between banks and 30-year lending to people is massive!" Well...that's right.

In 2015 the Fed raised rates by 0.25% but mortgage rates went down by 0.50%. The complete opposite of what most of your replies claim should happen.

This is not exactly a mysterious surprise. The Federal Reserve themselves have mountains of research, policy notes, and blog posts showing that there is an often large disconnect between the very short-term rates that the Federal Reserve can manipulate and longer term rates.

Here's on recent one (from 2017) titled, appropriately enough, "The Fed Funds Rate's Impact on Other Interest Rates"[1].

(Most US mortgages are fixed interest for the life of the mortgage. Very few other countries have that luxury. If you get a variable rate in the US, then it would be like yours -- tied to something else but with a markup.)

[1]: https://www.stlouisfed.org/on-the-economy/2017/october/incre...

[zzleeper]

Most mortgages in the US are sold to Fannie and Freddy (government-sponsored enterprises) [1]. These GSEs in fact commit themselves to buy mortgages at a predetermined rate [2], and I suspect this rate is the main driver for the rates banks charge, at least for "qualifying mortages" (i.e. not jumbo loans and so on). In turn, I suspect the rates the GSEs offer depends on the rates at which the GSEs can finance themselves.

Now, who lends to these agencies (i.e. who purchases "agency MBS")? I couldn't find recent numbers, but this [3] FRBNY article from 2015 states that the Fed owns most of it, followed by banks (which buy agency mbs partly because it counts as a safe asset (a "high quality liquid asset"), and allows them to satisfy their liquidity coverage ratio requirements.

This leads me to your first point:

> Mortgage rates are, mostly, driven by the market.

Pre-2008, I would say probably yes, but nowadays I'm not entirely sure, as the govt. is the biggest buyer and plays a large role in the second-biggest buyer.

[1] http://www.freddiemac.com/singlefamily/factsheets/sell/frm.h...

[2] https://www.bankrate.com/rates/interest-rates/fannie-mae-30-...

[3] https://www.newyorkfed.org/medialibrary/media/banking/intern...

[kgwgk]

> Very few other countries have that luxury.

Fixed rate mortgages exists in Europe as well. But most consumers prefer 0.5% variable rates to 5% fixed rates.