Advertised Mortgage Rate vs. Your Actual Rate

When you shop for the mortgage interest rate, you usually ask for a rate quote and get immediate answer from a broker. Don’t make a mistake! It ‘s not the rate you will get. Banks and mortgage brokers might quote you a Par Rate.  Par Rate is the lowest rate before rate adjustments for a mortgage program you need. Your Actual Rate most likely will be higher than quoted for the following reasons:
–Rates are subject to change every day, and even within the day, so the rate quoted,  reflects the market only at that point in time. It’s like the stock market – hard to predict it will go up or down.  You are guaranteed with the rate only at the time you lock.
–Adjustments! Different lenders have different par rates and impose different adjustments. Don’t trust advertised rates, look for an honest and professional broker who will research the market for the best rate for you. First, a broker must collect information about you (employment, income, assets, debt, credit report with credit scores, etc.), analyze your situation, do math, understand your aims. Second, a broker will run your scenario with different banks trying to find lenders that are willing to accept your application, especially on today’s market, and choose the best lenders for you. Only then, he will discuss with you available mortgage options and provide the actual rate quote. Finally, after you make a decision, a broker will submit your application and either lock the rate or will wait for the better market conditions (both only with your permission). 

Your Actual Rate = A Par Rate (at the time it was locked) + Rate Adjustments

For example: You want to refinance owner occupied single family residence. Your house market value (appraisal) is 800K and the new loan amount is 720K (90% Loan-to-Value). Your middle credit score is 700 and you have full documentation (full income/full assets).

What rate adjustments can you expect?
–State adjustment – Lenders might provide different rates for different States.
–Credit Score adjustment – Your middle credit score is less than 740. Usually, each 10-20 points lower might increase your rate.
–Cash-out refinance adjustment – Assuming you want to get some cash from your property or to consolidate your debt.  Your rate will be adjusted to a higher rate vs. rate and term transaction.
–High Loan-to-Value adjustment– Your property has 90% LTV. Usually beginning from 70% LTV, each 5-10 points higher will increase adjustment.
–Jumbo Loan adjustment – For the higher loan amount your rate will be higher.
Some Lenders will not impose adjustment for cash-out transactions, or higher Loan-to-Value ratio, or jumbo loans. We work with them.
–Closing Cost adjustment – The less closing cost you would like to pay the higher rate might be. Check our  post Closing Cost vs. No Closing Cost.
–Lock adjustment – The longer period of lock, the higher interest rate.

As a rule of thumb, the Lenders adjust your rate higher if the property is an investment property, condo >75% LTV, second home, two-four family residence or coop.