What Is Your Interest Rate?

What Affects Your Interest Rate And Why It Is Difficult To Be Precise When Getting Different Quotes…

Interest rates for the majority of home loan programs change on a daily basis. When asking for a rate quote, the consumer needs to be specific and consistent in providing credit related information in order to receive an accurate interest rate quote. Below is a list of items that may affect the interest rate:

• Credit Score: This is a crucial element that lenders look at to determine one's credit risk. Usually scores of 620 and higher will have the most frequent guideline and interest rate changes. Scores of 500 to 620 are likely to change less frequent and will be priced higher. Credit scores less that 500 are priced even higher and are less likely to have a price change fluctuation from one day to the next.
• Loan To Value: This is the loan amount compared to the property's value at the time the loan is made. The property's value is determined by an appraisal when doing a refinance and on a purchase, it is the lesser amount of the purchase price and appraised value. In other words, if you are buying a home for $150,000 and the appraisal comes in at $140,000, the lender will base the value at $140,000, not what you agreed to pay for the property.
• Combined Loan To Value: Many property owners have more than one loan on their property. This is simply the total of each of the loans compared to property’s value.
• Housing Payment History: Credit scores can be adversely affected when mortgage and/or rental payments are recorded as being late. Lenders look very closely at the number of late payments to determine a borrower’s credit worthiness.
• Loan Size: Lenders price their loans on different break points. Conforming loan is any amount that is $417,000 or less. Conforming loan amounts are usually priced lower for well qualified borrowers. Amounts above $417,000 are considered jumbo loans and are usually priced from 1/8 to 3/8 of a percentage point higher. Lenders usually vary their jumbo rates and fees based on various breaking points. Some lenders might consider loan amounts greater than $650,000 to be a super jumbo loan and price their rate and fees different than other lenders.
• Rate Lock Period: A lone is considered purchased at the time the rate is locked, not when the consumer actually receives the funds. Unlike other products or services that a consumer may purchase, a real estate loan transaction has numerous steps that must be completed before a loan closes. For example, if a consumer is asking for a 30-day lock, the lender will price the loan based on the rates at the lock request time and on the variables that affects the barrower’s ability to pay. Requesting the right lock time period is an important step in the loan process. It does not do a consumer any good to request a lock period when it is not practical to complete all of the required steps in time. Lock periods can range from 10, 15, 20, 30, 45, and 60 days; sometimes longer can be granted. Lock periods of 15 days and less usually require that the loan package be completely underwritten and approved. All time periods usually have different rates and fees, i.e. a 30-day lock might be more expensive than a 15-day lock.
• Property Location: Properties located either on or near a beach area will tend to be more valuable than a like property in blighted inter city area. Similarly, an urban property is likely to have greater appeal over a rural property. There are many situations or conditions that can influence a property's value and location plays a big part in the lender's underwriting approval process.
• Owner Or Non-Owner Occupied: Non-owner occupied property is considered to be a more risky loan for lenders and are normally priced higher either in rates or fees and in some cases, both rates and fees might be higher. A primary residence and a second home is considered as an owner occupied residence. Property held as an investment and rented is considered as non-owner occupied and comes with a higher lender costs.
• Loan Documentation: The loan request with the lowest rate and fees is the one that is fully documented. This means that the borrower can include verifiable proof of income, assets and liabilities as part of the loan package. There are other variations such as stated income stated assets (SISA), stated income verified assets (SIVA), no income no assets (NINA), and no income verified assets (NIVA). All of these loan packaging types have varying levels of risk as perceived by the lender.
• Prepayment Penalty: All loans are priced to yield a certain income over the life of the loan. The income is either in the form of a fee (points charged to the borrower) and interest over and above the lender's cost of money. The combination of fee and interest rate along with the borrower's commitment to keep a loan for a period of time can determine if a prepayment penalty will be assessed or not. For example, if a borrower seeks a low cost loan (little or no points), the lender will likey require a prepayment penalty to recover its original costs in case the borrower pays the loan off early.
• Escrow Or No Escrow (or Impunds Or No Impounds): This applies to impounding taxes and homeowners insurance as part of the monthly monthly mortgage payment. This is normally a requirement for loans that exceed 80% loan to value. Opting out of having an impound account usually involves an adjustment in the interest rate and/or loan fees (points).
• Loan Term: Interest rate for a 30-year loan will be higher than a 15-year loan. More interest will be paid over the life of a longer term loan than a shorter term loan. However, the monthly payment will be higher on a shorter term loan. The borrower needs to know all of the variables involved in selecting a particular loan type.
• Type Of Loan: The borrower can select from many different types of loan programs such as a fixed rate loan, adjustable rate loan, interest only loan, and an optional payment adjustable rate loan.  There is also a hybrid loan program that is a mix of a fixed rate for a periord of time followed by an adjustable rate for the remaining loan term.  
• Prepaid Points/Loan Buy Down: This is money that borrower must pay upfront to get a lower interest rate. Normally a viable consideration if the borrower knows that the loan will be kept for a certain period of time in order to recover the amount paid for the lower interest rate.

Each of the above items play a part in determining a particular interest rate a borrower qualifies for. As such, borrowers must be aware that rates being quoted are most likely a lower number suitable for the most ideal of circumstances. Low balling interest rates is a good way for a lender to get their foot in the door and that is something the borrower should always be aware of. In some cases the borrower may fit the criteria that matches the rate being quoted. However, why would you want to risk going with a certain lender without first providing all of the necessary information required for loan approval?

Borrowers will most likely be involved in a "bait-and-switch" situation if they think a lender is going to go through with the loan if any of the above items are not favorable. For this reason alone, a borrower should always seek out a mortgage specialist that they can trust to represent their best interest. If you want to shop around for different rates, be sure all of the items mentioned above are known so that you are comparing apples-to-apples so to speak. And, to further assure your shopping efforts, be sure to get a signed good faith estimate (GFE). This document will specify the note rate that determines your monthly payment amount, all of the loan related costs, and annual percentage rate (APR). The APR is the rate that includes all of your loan related costs. The APR is the only accurate way to determine the lowest cost loan when shopping for the best interest rate. It is also important that since interest rates change daily, doing comparison shopping should always be done during the same time period.

Bear in mind that the good faith estimate (GFE) is not a commitment to loan.  It is however, the closest and most accurate way to compare one lender's offering to another.  The borrower's loan application must go through the entire packaging process, i.e., verifying everything on the application takes several days and sometimes weeks to complete.  The information gathered during the initial credit application, if provided in good faith, is always subject to final approval.  However, as long as everything is disclosed accurately upfront, the borrower will most likely have loan approval without any surprises at closing.  

Click here followed by clicking the "Loan Application" button to begin the secure online application process or call the number listed below and ask for a mortgage specialist to help guide you through the maze of applying for a loan. After you have completed the full credit application and received a signed good faith estimate, you are invited to shop around if you wish. We only ask you to follow the suggestions mentioned above so that the comparison can be fair and in your best interest. You would not buy a car without knowing what the financing charges are, would you? So, why commit to a lender without knowing if they will honor the rate being quoted? Get it in writing – always!!