Why is the mortgage rate advertised always different than the rate I get?

Why is the mortgage rate advertised always different than the rate I get?

Best way to start this conversation is by telling you that companies want to advertise their absolute lowest rate.  The rate advertised is available however few people meet the minimum requirements to get that low rate.  12 day lock period, 60%LTV 760 FICO score etc.  Often times the loan officer quotes rate without having all of the information necessary to accurately provide a quote.

You should also know that no two borrowers are alike.   If your neighbor got a higher rate than you it doesn’t necessarily mean he/she/they got a bad deal.  Several factors are considered when determining what you get as a final interest rate.  We call these factors: Risk based adjustments.  These adjustments are made based on the amount of risk that is being taken by the lender.

The most common risk based adjustments are:

• Loan to value  
• Debt to Income Ratio  
• Credit Score
  
• State the property is located
  
• Loan amount 
• Combined Loan to Value 
• Escrow waiver  
• Lock period 
• Cash out   

All of these will either raise or lower the cost of your loan. 

*Your neighbor may have had a high debt to income ratio whereas yours was low so that could have raised his interest rate even though you both may have the same credit rating.

Here is an example of what adjustments look like on a mortgage rate sheet

The word Agency means Fannie Mae and Freddie Mac.  These are the companies aka “GSE’s” that buy the loan from your bank.  They impose many of the adjustments you see and end up paying for.

The numbers to the right are what we call “pricing” adjustments, meaning the rate can remain the same but it will cost the customer more or less money to get it.

The numbers you see are in percentages.  Example: .125 means a cost of .125% of the loan amount. A minus sign in front of the number means a credit, so  -.125 means a credit back to the borrower of .125%.

Example:

$200,000 loan amount .125% would be $250 cost to the borrower and  -.125 would be a credit of $250 to the borrower to get the quoted interest rate.

If you have a lot of these adjustments it will push the cost of the rate you are targeting higher or lower.

Rates change throughout the day.  It is not uncommon to have rates change more than once during a workday.  This adds to the reasons why the rate advertised may not be what you get. To ensure our clients get the rate we quote we require a full file before we lock rate.  This is because we shop rates with multiple lenders and we do not charge  “rate lock fees” like many institutions do.

Click on video below to understand how rates change.  Click here to contact me with any questions.

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