All mortgage rates follow one financial index or another to set their pricing. Fixed rate mortgages mirror the US 10-Year Treasury Bond or T-Bill. You can see graphs of this index's activity on financial websites by searching the symbol $tnx. Increases in the interest yield will mean higher fixed mortgage rates and decreases indicate lower fixed rates.

Variable rate loans or ARM loans can be tied to a number of indices, but the most prevalent are The US 1-Year Treasury Bond and the LIBOR or London Inter Bank Daily Rate. If your variable rate loan is tied to one of these loans and you're past the introductory period you can track upcoming changes by looking up these indices and comparing them to where they were when you originally took your mortgage loan.

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The Qualifying Process: What the bank needs to know to price your loan

By Matthew Killikelly

Borrowing money is different than other financial transactions in that the risk to the lender is ongoing so long as the loan exists. This means that the bank's profit margin is not calculated solely on cost to provide the borrower with the service less the cost of the product as in other purchases.

In the case of a loan the qualifications and history of the borrower, the amount of investment by the borrower and even property type and occupancy status of the property being collateralized are weighed to determine a unique risk profile for each loan. Every aspect of the transaction is carefully considered before a bank makes any solid offer for interest rate or closing fees.

Here are the factors considered by the lender in pricing your loan:

Transaction type-What are the customer’s needs?

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