Interest rates change based on the demands of the market. When a high demand exists for loans, interest rates increase to take advantage of an active market. If demand for mortgages is low, interest rates decrease to entice new customers.

Inflation also has a major impact on mortgage rates. Inflation is associated with a growing economy. As the economy grows, the prices for goods and services increase along with it. This price inflation affects real estate along with everything else, pushing up the price for mortgages.

Lastly, the Federal Reserve has the ability to influence interest rates for the purpose of controlling inflation and employment. It can do this by raising or lowering the discount rate, and indirectly influencing the direction of the Federal funds rate.