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Best Home Loan Mortgage Interest Rate Guide
When attempting to negotiate the "profit first method " with a lender or mortgage company in order to get your best mortgage interest rate it's imperative that you begin with the par rate. The par rate is the break even amount that the bank buys their money for. This way you can dictate the amount of profit you are willing to pay the lender/broker to facilitate the loan.
Most people do not realize the fact that interest rates do not change, the price that lenders and banks pay for the money is what changes. Interest rates are constant, meaning a 5% rate has and always will be a 5% rate. You can have this rate any time you want. What changes is the cost of that rate (points) which is dictated by the rates that banks buy and sell money for.
For the purpose of this tutorial-article I will not get into the wholesale pricing and markup of retail money. However, I do believe that you should take a brief look at a rate sheet that most loan officers are looking at when they quote you a rate. Keep in mind that these rates do not include adjustments for cash out, loan to value, product type or documentation type.
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When you ask a loan officer in the first thirty seconds "what's your best rate" (we hate that by the way) this is the rate you will get, and it's wrong. For the purposes of this exercise the basic rate sheet is fine though. OPEN RATE SHEET
Open the link above and look at the rate sheet . Notice that the top row is in increments of 15 days, this is the time that the money can be locked. I have highlighted "30 day lock" in red.
Most often when you get a quote the lender will use 30 day lock pricing, more about rate locks here. Now follow the rate increments on the left until you get to 6% highlighted in red. This is the par rate.
The price of money is measured in Basis Points, commonly referred to as Bps or "Bips." 100.00 is the "par number" anything over this number is a profit expressed in a percentage of the loan, anything below it is a loss and will be reflected in your closing cost as a discount. |
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For example, 101 equals one point of profit. 99.00 reflects one point paid for by discount. Looking at our rate sheet, if I were to price your loan at 5.875% on a $200,000 loan it would cost -.45% (100.00 - 99.55 = -.45% ) which equates to a -$900 loss, or discount to you. If I were to price your loan at 6.125% it would give me a 0.541% YSP (Yield Spread Premium) equating to a $1082 profit. If you move up the left hand column the rate increases as does the premium the lender is paid.
If you move down the left hand column the rate decreases, as does the price (discount) you pay for that rate. To see if paying points is right for you you can use our "should I pay points calculator". If this is all greek to you don't worry too much. Most lenders are not going to share their rate sheets with you, but they may share their par rate with you anyway. We have devised another plan to help you find the par interest rates to make your best home loan mortgage interest rate offer.
The best way to find the par rate on the loan you are seeking is simply to ask the loan officer you are working with.. The trick is to ask at least three different lenders and compare what they tell you is the par rate. Most LO's will be reluctant to quote a true "par" rate. You will usually get a puffed up rate when you ask the LO. Much like asking a car salesman his bottom dollar on a car.
However the beauty of shopping mortgages is you don't have to drive across town to do it. If you call lender "B" and ask them what their par rate is you will undoubtedly get a different answer. Then call lender "C" and repeat the process. Once you feel satisfied that you have the real par rate we need to discuss closing cost.
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