Rates of mortgage loans are highly influenced by the law of supply and demand. While no entity exist that is responsible for controlling these rates, it is a well known fact that the Federal Reserve Board, as the biggest regulator of currency, applies the strongest pressure on these rates especially on the supply aspect. There are no standard minimum mortgage rates available in the market. However, there is no possibility that these rates will fall lower than the rate of interest recommended by the existing long-term government bonds.
Risk Free Rate
The risk free rate is probably the most essential interest rate that influences greatly the mortgage loans rates. Risk free rate refers to how much investors must be remunerated to invest their money on a market that has zero payment risk. Since the government can actually control the amount of money it generates and be able to reimburse other financial requirements, sums of money borrowed by the government carries no repayment risk and is the hallmark representative of the risk free rate.
Federal Reserve Board
The Federal Reserve Board has many ways and means under it that enables it to control the supply of money. In short, this government organization can control even the amount of money available for the economy to thrive. Because of this, the Federal Reserve board has direct influence over the risk free interest rate, even to the extent of how much an investor can receive for depositing money for a day. In the same way the Federal Reserve Board can control the rates on long-term government companies such as 10- and 30- year Treasury bonds although with less accuracy.
As a general rule, rates of mortgages are slightly above the risk-free rates equivalents, which are signified by Treasury rates. For example, if a bank can acquire a 5% profit from investing money into a 30 years bond with the US Treasury, it will require prospect clients to pay more than this rate for a 30-year fixed loan. Not only is the return of the borrowed money for mortgage loan uncertain, but even a complete return in case of a non-payment can requires a considerable degree of effort for lenders, most commonly banks.. And since foreclosure eats up an ample amount of time and money, most often banks are not willing to lend money for these reasons.