[ed. Hello! My friend David Marx joins us for this week's edition of Mortgage Monday. He is principal of Dacor Financial and brings us his multiple decades of expertise as a mortgage broker. Please join me in welcoming him!]
How is your rate determined? The process is based on a myriad of criteria, with that criteria varying from lender to lender. For example, the pricing for a 30-year fixed-rate loan from just one lender can come in at some 80 different prices, depending on such factors as the lock period and cost of rebates!
And lenders may offer as many as 10 different interest rates ranging in increments as small as 0.125 percent (1/8%). Each interest rate will earn a different price in terms of the number of points you have to pay.
On top of that, different lenders offer better programs for certain scenarios than others. For example, if you're financing a non-owner-occupied property, you'll incur an additional fee. And some lenders fees will be higher than others. The mortgage broker's job is to sift through the lender lists of surcharges and price adjustments, and then determine which lender offers the best rate relative to your specific transaction.
Here are some of the factors that alone or in combination may affect the interest rate and the price of your loan.
Factors That Impact The Price of Your Mortgage
1. Rate lock period. This period is the amount of time the interest rate you are quoted is guaranteed. This period is most commonly 15, 30, 45, or 60 days.
2. Amount of the loan. Loans for amounts over $417,000 on first mortgages are known as jumbo loans and are generally a fraction of a point more expensive than typical (conforming) loans.
3. Ratio of the loan to the property value. The more you borrow relative to the property's actual value, the higher the risk to the mortgage lender.
4. Your credit score. Credit reports generate three scores and most lenders go by the middle one when determining what your ability (and credibility) to repay the loan is.
5. Occupancy. Owner-occupied properties generally qualify for the lowest rates while second homes and investment properties may command a rate premium which can be as small as a fraction of a point.
6. Single family residence or townhouse-style condominium vs. high-rise condos. Some lenders may place a surcharge on the latter.
7. Loan purpose. Cash-out refinancing, where you pull money as cash out of the loan against your property, commands a premium over regular loans that cover the purchase of the house or the straight refinancing of existing loans.
You're probably beginning to get the idea that you can't contact just one lender and expect to get the best loan. Some lenders won't even write loans on certain types of transactions.
Behind the scenes, your mortgage broker is juggling all these criteria, and building relationships with lenders --- the best mortgage brokers compare 30 or more --- each with a myriad of rate offerings, in order for you to get the best pricing possible for your particular transaction.