How are mortgage rates calculated?

[Michelle Garcia]

I want to get a better understanding on how mortgage rates are calculated. I currently have two lenders trying to convince me to choose them as my lender with 5% down. One lender is telling me they can give me a 3.5% rate if I go with them and the other is telling me that he doesn't want to lock me in a rate because there is a chance the rate will go down (however, estimating a 3.75% rate)

My question is, can a bank offer whatever number they like and lock in the rate or does it really depend on the market. I have a stellar credit score and I am financially capable of punching the property I am under contract. 

Should I wait to see if the rate can go down or lock in the rate?

I want to make sure I go with the right offer. Thoughts?

[David Kelly]

Yes, mortgage rates do fluctuate daily.  For your lender to offer a later lock because they believe they can get a better rate is not exactly their call.  It is pure gambling at that point at the cost of your money.  If you choose that lender and they start the process and are unable to get you that rate then you will be the one that has to pay the difference or possibly risk losing the deal if the terms cannot be met.  Do you know if the 3.5% lender is charging points for that rate?  If they are simply throwing rates out at you without giving the "fine print", I would dig a little deeper and find out what all the closing costs are.