When you're shopping for a mortgage, you're on the lookout for the lowest interest rate. You may have the urge to try to time rate changes so that you can get in just when rates dip. Unfortunately, this is far easier said than done.

Coca-Cola keeps its formula under wraps by calling it a trade secret. But when it comes to mortgage interest rates, there's no competitive advantage at stake-so why doesn't anyone seem to know what makes mortgage rates tick?

The factors that influence mortgage rates include trends in the stock and bond markets, unemployment levels, inflation concerns, and changes to the fed funds rate. Since each of these is difficult to predict on its own, forecasting any kind of combined effect is challenging, to say the least. There's no formula to make it easier, but watching 10-year Treasury yields, the fed funds rate, and stock market trends is a good place to start.

10-year Treasury bonds

The mortgage industry relies on the liquidity provided by the secondary mortgage market, where investors purchase shares of pooled mortgage loans in the form of mortgage-backed securities (MBS). MBS must be structured to pay a competitive yield relative to the level of risk involved; otherwise, no investor would buy them. Here's where U.S. Treasury bonds come into play. Treasuries, backed by the full faith and credit of the U.S. government, are considered among the safest debt securities out there. MBS yields have to be somewhat higher than intermediate-term Treasury bond rates to compensate investors for the additional risk. Intermediate-term bonds are considered the benchmark, because most mortgages are either paid off or refinanced within 10 years. Considering that MBS yields are limited by the rates charged on the underlying mortgages, changes in Treasury bond yields can sometimes foreshadow corresponding changes in mortgage rates.

Federal funds rate

The federal funds rate is the rate banks charge each other for overnight loans. Banks are in the business of earning profits by obtaining money at one rate, and lending it out to borrowers at a higher one. Since the fed funds rate is a driver for a bank's cost of funds, it's also a driver in lending rates. If the fed funds rate goes up, mortgage rates will feel some upward pressure also.

Stock market trends

Stock market trends are important because they influence (and are influenced by) the fed funds rate. What's more, the health of the stock market is generally regarded as a measuring stick for the health of the overall economy. When the stock market is in a downward trend, the Fed may choose to cut the fed funds rate target to free up the money supply. If the stock market is skyrocketing and the economy is in danger of overheating, the Fed may increase the fed funds rate to tighten the money supply.

You may not know Coke's secret formula, but at least you now have a better idea of what signs to follow when you're watching mortgage rates. And that could quench your thirst for saving money.