Any prospective homebuyer who has ever shopped around for mortgage interest rates knows interest rates fluctuate daily. That's because loan interest rates are subject to the same laws of supply and demand that determine costs in every other part of the economy. When demand for credit is high, current mortgage rates will be high. When there's less demand for credit, interest rates will reflect that.

Today's mortgage interest rates are the lowest they've been in decades, reflecting the fact that many more people are interested in selling houses than in buying them right now. Of course, that's just one factor among many that affects the mortgage market. Bond prices, short term interest rates, the overall health of the American economy, and the possibility of inflation also affect mortgage interest rates.

Current Mortgage Rates and the Capital Markets

Loans can be best understood when they're thought of as a type of commodity. Financial institutions bundle mortgages and other types of loans together in financial instruments known as bonds and then offer those bonds to investors on exchanges called capital markets. Mortgage-backed securities compete in capital markets with other products including corporate bonds, foreign bonds and U.S. Treasury bonds.

Current Mortgage Rates and T-Bills

U.S. Treasury bonds are a type of security issued by the U.S. government when it needs to borrow money. T-bills mature over a set interval of time, typically one year. When an investor redeems a T-bill, he or she receives the full face value of the note plus interest.

Investors have noticed an interesting relationship between T-bills and mortgage-backed securities over the years. Fixed mortgage rates tend to track U.S. Treasury notes. This is not a cause and effect relationship, however. Mortgage loans carry a much higher risk than T-bill purchases, which are backed by the U.S. government. So mortgage interest rates are typically priced higher to compensate investors for carrying the additional risk. Historically, mortgage-backed securities run 1.7 percent above U.S. Treasuries in capital markets. This is another factor that accounts for the daily fluctuations of mortgage interest rates.

Lock In the Best Rate

One way for mortgage hunters to make sure they get the best mortgage interest rate is to obtain a written "lock-in" from their financial institution or broker that guarantees they will be protected from changes in mortgage interest rates while their loan is being processed.