[Nathan T]

What I mean by that is I assume there is a formula which banks use to figure out what mortgage rates to offer a customer based on prime rates, customers credit history, size of mortgage, etc...

Does anyone know how this process works and the specific formula/methodology used?

thanks in advance!

[HuaracheKid]

In general, mortgage rates are determined by the bond market, the 10 yr. treasury to be specific.

Different lenders use different formulas - there isn't one magical formula that all lenders use. Also, it depends if the lender plans to keep the note or sell it to another investor. If it is sold, the lender has to follow the buyer's guidelines and doesn't have as much flexibility with determining interest rates.

The rate depends on the type of loan too. Rates for 1st mortgages are different from 2nd mortgages and equity lines. Again, different lenders use different formulas.