Why mortgage rates can be a mystery
ARE NEVER WHAT YOU EXPECT
The rate you find online is not necessarily the rate you’ll get.
Shopping mortgage rates is a bit like trying to buy a car that has five sticker prices on the window. You have no idea which price is even close to what you’ll pay.
Here’s how to get a real rate. THAT LOW MORTGAGE RATE MIGHT COST YOU Put a few details into an online mortgage tool and you get a page full of results with dozens of different interest rates. You’re certainly not going to pick the highest one, but how do you know whether the lowest rate is the real deal?
First off, all of the rates you see are “published” rates. Many times an additional fee is required to earn that rate. For example, in a recent weekly survey of national lenders by Freddie Mac, the average rate noted required borrowers to pay a 0.50% discount point — or one-half of 1% of the loan amount. On a $300,000 loan, that means you’d pay $1,500 upfront to get the published rate. That’s in addition to the down payment.
If you want to get a mortgage without paying points, your rate will be higher.
YOUR RATE MAY VARY Lenders also publish rates that have very specific prerequisites.
“Those assumptions could be a specific loan-to-value — so a specific amount of equity in a property — or a specific credit score, a specific loan amount and a specific product,” says Shmuel Shayowitz, president of Approved Funding. “And most certainly a specific location. Because banks offer different rates based on different geographical locations.”
And then there’s rounding. Freddie Mac, lenders and the media often quote average rates in hundredths of a percent; for example, 3.43% for a 30-year mortgage. It’s almost certain you won’t get that rate because lenders quote rates in 1⁄ increments, 8 which is 0.125%.
“More than likely that rate would go up to 3.5% or a lender may go down to 3 3⁄8 and then charge more in the fees,” Shayowitz says. “But you’re certainly not going to get a rate of 3.43% — and how and where it gets rounded up or rounded down to the 1⁄ 8 increment is up to the individual lender.”
HOW TO AVOID THE IRRELEVANT RATE “The rate that you’re getting quoted online or seeing in the media really is irrelevant. It’s almost unattainable. It’s not tangible,” Shayowitz says. To get a real-life mortgage rate, he says, “Speak to somebody — a live person — about your individual circumstances.”
“The rate that you’re getting quoted online ... really is irrelevant. It’s almost unattainable.” Shmuel Shayowitz, president of Approved Funding in River Edge, N.J.