What Is The Best Rate?

That Depends...

One of the first questions I am often asked is, "What is the best rate you can get me?"  The answer is not that simple. More and more lenders are offering different rates for different scenarios.  I am often not able to quote exact rate until I learn more about you and your purchase.  Here are some of the things that can determine your rate:

Time

Your possession date can determine which rates are available to you.  The standard rate commitment in mortgage lending is 120 days.  But a lender may be willing to offer a lower rate for a shorter period of time, recognizing there is more rate certainty in the near future than several months away.  Often, there are rate promotions available for mortgage applications that need a rate commitment for a shorter period of time (example 30, 45, 60 or 90 days).

Your Credit

Most clients with average to excellent credit will receive the same interest rate on their mortgage as long as they can meet standard guidelines.  But, we are seeing a few mortgage lenders offer quick close rate specials that also have a requirement for a higher credit score. 

Down Payment Amount

Many lenders distinguish between high ratio or insured mortgages (less than 20% down payment) and conventional mortgages (20% or more down payment) when offering mortgage rates. An insured mortgage is much safer for a lender.  It means there is a 3rd party insurer who will pay out the mortgage if the buyer defaults and goes into foreclosure.  It is a bit counter-intuitive but someone who has less down payment can actually be more attractive than someone with more down payment.  An uninsured mortgage is riskier, particularly for those who JUST make the 20% down payment requirement to avoid mortgage default insurance premiums. 

Rental vs. Owner Occupied

More and more we are seeing interest rate differences between rental rates and owner occupied rates, or lenders who limit or have pulled back on financing any rentals.  Research shows people are more likely to default on an investment property than they are on their own home.  Lenders are factoring that risk into their rates and lending policies. 

Flexibility

You can now find banks and other lenders offering lower rates, but you lose mortgage features.  You may not be able to to port your mortgage to avoid breakage penalties should you sell and buy before your term is complete. You may lose or see a decrease in some of your pre-payment options.  There are even mortgages available where in exchange for your lower rate, you are not able to refinance or change your mortgage in any way during your term due to a "sale only" clause (meaning the only way to break your mortgage is to sell your house). Some of these "sale only" mortgages may allow for a refinance into a similar product with the same lender, but they do not need to be at competitive rates.   

Cost To Break It

With so many people shopping for mortgages solely based on interest rates, lenders are creating more and more restrictive mortgages in order to offer them at a lower rate.  One thing they are changing is how much it costs to break the mortgage.  There are already big differences between lenders in the standard penalty calculation on fixed rate mortgages, called the Interest Rate Differential (IRD).  If that was not already complex, there are now mortgage lenders charging a whopping 2.75% breakage penalty instead of the standard IRD or 3-months interest calculation.  These are a big deal.  It can eat up a chunk of your equity if you sell before you mortgage matures, or may even prevent you from moving. 

Lender mortgage rates are becoming more and more complex.  More than ever, it is helpful to work with a mortgage professional who can help you understand your options.