Most of the other answers you got were wrong.

Mortgage rates are, mostly, driven by the market. The Federal Reserve influences the Federal Funds Rate (they don't "set it"; they set a target and then manipulate the market by buying & selling to try to reach that target). The FFR is just for overnight lending between massive institutions.

If your intuition says "hey, the difference between overnight lending between banks and 30-year lending to people is massive!" Well...that's right.

In 2015 the Fed raised rates by 0.25% but mortgage rates went down by 0.50%. The complete opposite of what most of your replies claim should happen.

This is not exactly a mysterious surprise. The Federal Reserve themselves have mountains of research, policy notes, and blog posts showing that there is an often large disconnect between the very short-term rates that the Federal Reserve can manipulate and longer term rates.

Here's on recent one (from 2017) titled, appropriately enough, "The Fed Funds Rate's Impact on Other Interest Rates"[1].

(Most US mortgages are fixed interest for the life of the mortgage. Very few other countries have that luxury. If you get a variable rate in the US, then it would be like yours -- tied to something else but with a markup.)

[1]: https://www.stlouisfed.org/on-the-economy/2017/october/incre...

Most mortgages in the US are sold to Fannie and Freddy (government-sponsored enterprises) [1]. These GSEs in fact commit themselves to buy mortgages at a predetermined rate [2], and I suspect this rate is the main driver for the rates banks charge, at least for "qualifying mortages" (i.e. not jumbo loans and so on). In turn, I suspect the rates the GSEs offer depends on the rates at which the GSEs can finance themselves.

Now, who lends to these agencies (i.e. who purchases "agency MBS")? I couldn't find recent numbers, but this [3] FRBNY article from 2015 states that the Fed owns most of it, followed by banks (which buy agency mbs partly because it counts as a safe asset (a "high quality liquid asset"), and allows them to satisfy their liquidity coverage ratio requirements.

This leads me to your first point:

> Mortgage rates are, mostly, driven by the market.

Pre-2008, I would say probably yes, but nowadays I'm not entirely sure, as the govt. is the biggest buyer and plays a large role in the second-biggest buyer.

[1] http://www.freddiemac.com/singlefamily/factsheets/sell/frm.h...

[2] https://www.bankrate.com/rates/interest-rates/fannie-mae-30-...

[3] https://www.newyorkfed.org/medialibrary/media/banking/intern...

> Very few other countries have that luxury.

Fixed rate mortgages exists in Europe as well. But most consumers prefer 0.5% variable rates to 5% fixed rates.

A variety of market factors set them, but Since 2008 they've been effectively set by the Fed intervening in/manipulating the market. Historically the Federal Reserve intervened to set interest rates by buying short term Treasuries. This doesn't have a direct effect on long term debt though, and the Fed didn't want a greater collapse in housing prices after 2008, so they moved to keep mortgage rates low by directly printing money to buy mortgages. The Fed also moved to buy long-term Treasuries, which pushes others who otherwise would buy Treasuries to buy MBS.

As for the scale of this, in 2008, the Fed owned 0 MBS. Since then, the Fed has printed 1.7 trillion dollars [1] to buy MBS. The total amount of total outstanding mortgage debt on every house in the U.S. is 8.8 trillion [2]. Now that the Fed has stopped doing this, rates are going up.

[1] https://www.federalreserve.gov/monetarypolicy/bsd-overview-2... [2] https://www.marketplace.org/2018/02/13/economy/divided-decad...

The Federal Reserve Bank ("The Fed") sets the base rate (i.e. the "overnight rate") from which commercial banks can borrow. Those banks, in turn, lend to debtors of all sorts, adding various risk premiums to the interest rates along the way.

More info: https://www.federalreserve.gov/aboutthefed/structure-federal...

Sounds similar with a base reference rate + lender's margin (in finland currently like 0.2-0.5% for house loans), but for some reason the base rates are positive in the us?

After 2008 in europe the rates took a dive and have been negative for a few years.

Doesn’t work like that in the US. Most mortgages are fixed rate for the duration of the mortgage.

> What drives the interest rates in the us?

This is a very complicated question.

There have been periods where short rates go up but 30y mortgage rates are unched or only up small or even down.

I think most people use 30y fixed rate mortgages in the US.

U.S. variable rate mortgages are usually indexed to Libor or U.S. treasury rates.

Just wait till Sep when ECB stops printing money (aka QE)

It won't, though. The inflation rate has been dropping, and the forecasts don't predict significant increases.