This paper studies how banking market concentration and its reliance on wholesale funding can affect the transmission of monetary policy shocks to mortgage rates. First, I document heterogeneous mortgage rate responses to monetary policy shocks. I find differential responses from banks with varying reliance on wholesale funding in concentrated markets. Second, I build a quantitative New Keynesian model with monopolistically competitive banks that have costly access to wholesale funding. In contrast to assuming a perfectly competitive banking sector, my model exhibits a dampened transmission of monetary policy on mortgage rates, consumption, and housing prices. I then study monetary policy transmission under the Basel III Liquidity Coverage Ratio rule that limits excessive reliance on wholesale funding. I find that higher market power banks with greater reliance on wholesale funding respond strongly to monetary tightening on mortgage rates. My findings provide new insights into how monetary policy affects mortgage rates through the interaction between bank competition and the cost of providing mortgage loans.