Because of the many factors that play into mortgage rates, we first have to acknowledge that the consumer and his/her manipulation of these factors will ultimately determine the end result. One example that affects the credit availability is the flow of deposits into the bank. As bank customers make deposits and contribute to the various savings instruments, banks then have more capital with which to lend and invest in future gains. The influx of capital then acts on interest rates by generally making the cost of borrowing, lower. This is reflected in lower interest rates. Same goes for a transaction in the other direction: if you borrow money or charge items on a credit card, the interest rate will raise as a result of the lowered pot of available credit.

On a grander scale, the forces that make interest rates increase are demand-driven. Perhaps counter-intuitively, more credit is demanded in boom times, and less is demanded in slower economic time. Each one of these situations affects the interest rates for capital. When credit reaches an unbalanced state, then we witness the effects of inflation. Inflation is the result of counter-measures taken by banks to make more money from borrowed funds in an attempt to offset any losses or decreased revenue. Inflation is then tackled, in many instances by government agencies.

The Federal Reserve has a big tool box, but the one that gets the most coverage in the media is the adjustment of the Federal Reserve's Federal Funds Rate, or Fed Rate. While the Fed Rate isn't necessarily adjusted with mortgage rates in mind, it indirectly determines the rates available for potential home buyers. Likewise, its effects can be widespread and diverse; there is no one way to determine if mortgage rates are better off when the Fed Rate is stable. To show the indirect effects, the Fed Rate is the cost of borrowing money that one bank charges another bank for investments and credit. If the Fed Rate increases, the bank doing the borrowing is being charged more than usual for borrowed funds. It would then increase its consumer interest rates to make up the difference.

On the other side of the coin, a cut in the Fed Rate, commonly results in increase in mortgage rates, as well. The reasoning for this is the link to Treasury bonds, which are investments that the Federal Reserve extends to compete with more traditional investment instruments like stocks. When many of investors move their capital to another market with more favorable (read: more profitable) rates, then the Fed needs to compete by increasing the Treasury bond rate, guaranteeing a higher rate of return to those investors. This, then, is tied to the prevailing mortgage rate and other mortgage-backed securities.

Recently, fixed rate mortgages have seemed to dominate the market, but once this market has been exhausted, sub-prime and adjustable rate mortgages are soon to follow. The key to understand these mortgages with different terms than fixed rate mortgages is the backing by LIBOR, or the London Interbank Offered Rate. It simply operates as a different yard-stick to which interest rates are compared, much like the Fed Rate, but with a British accent. Home Equity Lines-of-Credit are usually more favorable for borrowers as they are directly tied to the prime rate, and are up to three percentage points lower than most other mortgage-backed rates.

While you may face a complicated challenge of getting the best rate on your mortgage, you must consider the timing that can play a crucial role in your final rate. The influences mentioned above are all points to consider up front. Simply relying on the information about the Federal Reserve would diminish your ability to make full use of the information that's out there. Now go find it!