What causes home mortgage rates to fluctuate? Any number of factors. One very simple way of understanding the variation is to think of home mortgages as a type of commodity that can be bundled in various ways into financial instruments called bonds.

Each bank, brokerage and financial institution that loans money to homebuyers structures their bonds slightly differently, offering variations in risk and return to potential investors. Investors are looking for financial products that will maximize their returns while minimizing their exposure to risk. It is generally the case, however, that the higher the risk exposure, the higher the return. Hence, investors will frequently take a chance on a bond that a prudent analyst will deem less than sound.

The collective exchanges where mortgage bonds are bought and sold are called capital markets. Mortgage bonds compete there with a wide assortment of other financial products, corporate bonds, foreign bonds and U.S. Treasury notes. There's intense competition for investor dollars. What's the most dependable way to increase the demand for a mortgage product? Raising its rate of yield or, in other words, charging the prospective homebuyer a higher rate of interest on his or her loan. This is the reason why current mortgage rates for homes fluctuate from month to month, sometimes quite dramatically.

Of course, this is a gross simplification. Many other factors influence home mortgage rates as well, including the overall health of the American economy, the direction the economy is likely to move and the threat of inflation. But current mortgage rates reflect the demand for mortgage products in capital markets. When interest rates decline, investors look for other places to put their money.

There's a relationship between fixed mortgage rates and U.S. Treasury bonds. It isn't a cause and effect relationship, but the two financial commodities seem to track one another. U.S. Treasuries, of course, are backed by the credit of the United States while mortgages carry the risk of both default and early repayment; so mortgage rates are generally priced higher than 10-year Treasury notes, usually in the vicinity of 1.7 percent.

Capital markets right now are reflecting a demand for mortgage securities that was artificially created by the U.S. government when the Federal Reserve implemented a program to purchase $1.5 trillion in mortgage-backed securities. Though this program officially ended in April 2010, its effects are still being felt.