why is the 10 year treasury note used as a benchmark for determining mortgage rates?

Answer 1

Mortgages are bundled together by mortgage companies and sold on the open market as mortgage backed securities. Say $10M of 30 year loans at 7.00%. These securities are sold to investment companies (insurance companies, investors, banks, pensions).

Ten year bonds are also sold to investors on the open market and are considered a rock solid almost guaranteed investment. Mortgage backed securities are considered higher risk (since mortgages in the bundle could be refinanced or defaulted (foreclosures)).
SO when pricing mortgage securities, traders will look at the price and yield of treasury bonds and determine what they're willing to invest. If T-bonds are yielding 8% then mortgage securities are going to be higher than 8% otherwise, why buy them? If I can get T-bonds for a better return why take the risk? Conversley, if T-bond yield 4% the interest required to sell mortgages on the open market goes down with it. Other factors determine mortgage rates also, but T-bonds are their major competition for investor dollars.

Answer 2

The mortgage note may be written for 30 years, but the average person moves and pays off their mortgage in 7-10 years. This makes the 10 year treasury the nearest risk-free benchmark.

Answer 3

Mortgage rates used to be tied to the 30 year treasury bonds but they discontinued those and so they began using the 10 year treasury notes because it is the longest treasury note term.