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It's the million dollar loaded question, and probably the one I get most often in my line of work... "What are your interest rates today?" For such a simple question it's actually very difficult to answer. When you ask a lender this question their immediate response will probably be "it depends." I promise we are not being shady salespeople! The interest rate for your loan is based on several factors and we'll get into what those are, but I'll let you in on one of the best kept "secrets" in the mortgage industry - you can get almost any interest rate you want on your mortgage, for a price.

Before I go into what a rate is based on I want to clarify that when we talk about mortgage rates we are really talking about the multiple pieces that make up the loan's pricing. Mortgage pricing is made up of the interest rate and the discount points that correspond with that rate. Discount points are a one-time fee paid to your lender at closing in exchange for a lower interest rate. Discount points are quoted in percentage of your total loan amount, so .5 points is 0.5% of your loan amount. That doesn't sound like much but these fees can add up quickly.

Ok, so you pay discount points for a lower rate, but lower than what, exactly? The answer to that is par pricing. The par rate, as it is typically known, is the rate that corresponds most closely to 0 discount points. For example, let's say today's par rate is 4.5%. If you take this rate you pay no points. However, if you want a lower rate, say 4.25%, you would pay .2 points. The cost of the rate goes up the lower you go, so in this example a rate of 3.75% might cost 1 point. This would be 1% of your loan amount, so on a $200,000 loan it would mean $2,000 added to your closing costs. On the flip side, if you are a little short on funds for closing, you can also take a higher rate in exchange for a lender credit, or negative discount points. In this example, you could take a rate of 5% with -.75 points, which on your $200,000 loan would mean a credit to you of $1,500.

So how are these rates and discount points determined? Well, the pricing for your loan is based on loan product, how long your lock is, how much you are putting down, and your credit score. Mortgage pricing changes every day based on market factors. To protect buyers from these market changes we lock the pricing for a set period of time once you have an accepted offer on a property. The length of the rate lock is determined by anticipated closing date and the longer the lock period the higher the cost. While a 30 day lock is most common, we offer rate locks up to 1 year if needed.

Let's look at some examples of pricing sheets for a conventional 30 year fixed loan.

This first example is today's pricing for a buyer with a 770 credit score putting down 5% on a sales price of $262,000. If we are looking for a 30 day lock (most common), par pricing would be 4.375% with a small credit back. As you can see, the cost goes up quickly for a lower rate.

In this example everything is the same as above except the buyer has a credit score of 700. As you can see, the par pricing has moved to 4.625% with a small credit. This buyer can still get that 4.375% rate, but it will cost them .698 points, or just over $1,700.

Once again, same scenario with just the credit score changed, this time to 650. The cost difference is a lot bigger this time, with par pricing at 5.375%, a full percentage point higher than our buyers with top notch credit! For these buyers to get that 4.375% rate they would have to pay 2.448 points, or just over $6,000.

I hope, if nothing else, this post illustrates the importance of good credit! However, this is just one example of how mortgage pricing works. As always, the most important piece is picking the right loan officer who can guide you through the process of choosing the best loan product and rate for your situation!


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