Mortgage hunters find a surprising range of prices — why is that?

Q: With rates so low, we decided to go mortgage hunting. What we discovered was that a lot of lenders do not offer the low rates we’ve been reading about. Also, there was a surprising range of prices among lenders, some much higher than others. How do you explain this?

A: Published mortgage rates are a wonder to behold, but they’re not a wonder for everyone. It certainly makes sense to see what’s out there with rates now at or near historic lows. What you’re likely to find are an array of rates, including some that are very attractive and others that are hardly bargains. There are several reasons for this.

First, the best rates are reserved for the best borrowers, those with credit scores generally above 780, ongoing income and good reserves. This means it’s important to check credit reports at Annualcreditreport.com. Because of the pandemic, you can now get credit reports from Equifax, Experian and Transunion without cost as often as once a week until April 20. See if there are any errors or out-of-date items. If you find any, they can drag down your credit score. Contact the credit reporting agency if you find something amiss and get it corrected.

Second, this is a great time to be a lender. Black Knight estimates that lenders originated some 9 million mortgages worth $4.4 trillion in 2020, a record production level. There were a lot of originations, and there were also significant profits associated with the typical loan.

“Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $5,535 on each loan they originated in the third quarter of 2020,” according to the Mortgage Bankers Association (MBA).

Third, the huge numbers are sometimes overwhelming. There is only so much volume that lender systems and staff can handle. The result can be higher rates and stiffer fees, a way to make scarce resources more productive. This is one reason why borrowers should shop around.

Fourth, published rates are always subject to change. That’s because mortgage rates are constantly moving up and down. The good news has been that mortgage costs have generally been falling for some time. According to Freddie Mac, the average rate was 4.54% in 2018 and 3.94% in 2019. In November 2020, the average rate was 2.77%, a record monthly low.

Fifth, demand has led to a new emphasis on fees. Be careful with low-rate quotes. Look at the entire deal, especially fees and charges. If you come across a mortgage offer with an enticing low rate plus big fees you need to see if there are better options.

Published rates have value in the sense that they show borrowers where the mortgage market is headed and the general interest levels that are out there. Nobody is saying that such rates will not change or that every borrower will qualify for the lowest interest levels. The published rates — plus lots of shopping around — can get you to the promised land of low rates and sensible qualification standards.