What Really Is Your Mortgage Interest Rate?

Ask the Right Question When Asking a Lender

What Is the Mortgage Rate?

 
I am fortunate to have a top mortgage lender address this question today, George Soutu.  No matter how low interest rates get one of the most asked questions I get is ‘What Is Your Mortgage Interest Rate’?  My answer, as a mortgage lender, is always the same, it depends.  Borrowers whose only concern is to get the lowest interest rate when buying a home, believe the lowest interest rate is the best deal.

When a Borrower calls and this is their first question, the conversation usually goes something like this from me:  Sorry I can’t just simply give you an Interest Rate.  The law requires me to also give you the…

At this point the Borrower will ALWAYS tell me they do not want to be charged Points.  My response is whether the Interest Rate will include Points or not, it will depend on their Credit Score, Loan-To-Value (LTV), the type of property they are purchasing and Loan (FHA,VA, Conventional) Program.

When the caller hears my response one of two things generally happens.  Either the conversation ends with the Borrower realizing I am not just going to give them an Interest Rate with out having a lot more information, or they realize the conversation does need to be more in debt in order for them to avoid a surprise later on.

When it comes to Interest Rates there are other factors a Borrower needs to consider which are just as, if not more important than the Interest Rate.  One of those important factors a Borrower needs to consider is the Costs associated with that Interest Rate.  One Lender may quote a 3.75% Interest Rate while another a 3.5% Interest Rate.  Which one is the better deal?  The answer is, it depends so please read on.

The 3.75% Interest Rate maybe a better deal than the 3.5% Interest Rate.  The 3.75% Interest Rate may not have any Points associated with it, while the 3.5% Interest Rate may require the Borrower to pay 1 to 2 Points  (points are monies you must pay the lender 1 point is 1% of the mortgage amount you are financing).  The difference will be very apparent in the dollar spread in the two APR’s (annual percentage rates).

What will determine which Rate is a better deal, is the payback time for the Points associated with the 3.5% Interest Rate.  The payback time can be quickly calculated by dividing the cost of the Points, by the monthly savings in the mortgage payment.  This will provide the Borrower with the number of months it will take to recoup the cost of the Points.  In my opinion if it takes more than 4 to 5 years (48 to 60 months) to recoup the cost of the Points, it is not worth it.

One other important factor is an Interest Rate may only be good for a moment in time.  Interest Rates can change daily and even several times during the course of a day.  The change in Interest Rates are determined by the 10 Year Bond.  If the 10 Year Bond is doing well the Interest Rates may go down.  If the 10 Year Bond is not doing well the Interest Rates may go up.  The economic news throughout the day and week will determine how the stock market will react, which in turn impact the 10 Year Bond, and how quickly the interest rates will change. The only sure Interest Rate is the Interest Rate a Borrower locks with a Lender once they are in a position to do so.

As you can see the question “What Is Your Interest Rate?”  may sound like an easy one, but it is not as simple as it sounds.    It depends on other factors.

If someone just gives you a quick answer, be very careful.  You maybe in for an unpleasant surprise later, and they may be breaking the law if they do not quote you an Annual Percentage Rate (APR) with the Interest Rate.  It is so important to have an in depth conversation with a mortgage lender before you decide on which lender you choose.

Know Your True Mortgage Interest Rate Including Annual Percentage Rate.

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