Thursday, July 7, 2011

Why can't I get the rate I saw on the Banner?

Mortgage rate Q&A: “Why are mortgage rates different?”

Why is the sky blue? Why are clouds white? Why won’t your neighbor trim their tree branches?

These are all good questions, and ones that often puzzle even the savviest human beings.

First things first, take a look at how mortgage rates are determined to better understand how banks and mortgage lenders come up with interest rates to begin with.
From there, you’ll need to consider why mortgage rates are different for consumer A vs. consumer B.

No One Size Fits All for Mortgage Rates
Mortgages are complicated business, and there certainly isn’t a one-size-fits-all approach.

Every loan scenario is different, and must be priced accordingly to factor in mortgage default risk (risk-based pricing).

Mortgage Rates Vary Based on the Loan Criteria

Mortgage rates don’t exist in a bubble – the parts affect the whole.

Banks and lenders start with a base interest rate (par rate) and then either raise it or lower it (rarely) based on the loan criteria.

There are loan pricing adjustments for all types of stuff, including:
• Loan amount
• Documentation (full, limited, or stated)
• Credit score
• Occupancy
• Loan Purpose (purchase or refinance)
• Debt-to-Income Ratio
• Property Type
• Loan-to-value / Combined loan-to-value

The more you’ve “got going on,” the higher your mortgage rate will be. And vice versa.

I’ve already covered a few related topics, including why mortgage rates rates are higher for condos and investment properties.Mortgage rates are also higher on jumbo loans and refinance transactions, especially those involving cash-out.

Advertised Mortgage Rates Are Best Case Scenario

You know those mortgage rates you see on TV? Those assume you’ve got an owner-occupied single family home, a perfect credit score, a huge down payment, and a conforming loan amount. Not to mention a newborn golden retriever.

Most people don’t have all those things, and as a result, they’ll see different mortgage rates. And by “different,” I mean higher.
How much higher depends on all the factors listed above. So take the advertised rates you see with a huge grain of salt.
Shop Around!

All the more reason to shop around. Compare mortgage rates online and speak with a mortgage broker.