What Is Your Interest Rate?

I don't hear the question "What Is Your Interest Rate?" as often as people may think, but I do hear it on a weekly bases.  Those who call to inquire about my Interest Rates, have usually already talked to another Loan Originator, and are just shopping around for the lowest Interest Rate that they can find.  When a Borrower calls, and this is their first sentence, the conversation usually goes like this.

Sorry I can not just simply give you an Interest Rate.  The law requires me to also give you the Annual Percentage Rate (APR) for that Interest Rate, and the APRcan be different for the same Interest Rate based on whether there will be Points charged.  At this point the Borrower will ALWAYS tell me that they do not want to be charged any Points.  My response to that is that whether the Interest Rate will include Points or not, will depend on their Credit Score, Loan-T-Value (LTV), type of property they are purchasing, and Loan Program.  At this point the conversation either ends, with the Borrower realizing that I am just not going to give them an Interest Rate with out having a lot more information, or they realize that the conversation does need to be longer in order for them to avoid a surprise later on.

When it comes to Interest Rates there is at least one other factor that the Borrower needs to consider, that is as important, if not more so than the Interest Rate, and that is what are the Costs associated with that Interest Rate.  One Lender my quote a 3.75% Interest Rate while another a 3.5% Interest Rate.  Which one is the better deal?  The answer is, it depends.

The 3.75% Interest Rate maybe a better deal than the 3.5% Interest Rate.  The 3.75% Interest Rate may not have any Points associated with it, while the 3.5% Interest Rate may require the Borrower to pay 2 Points, this will be very apparent with the spread in the APR, and also the amount in Box "A" of the Good Faith Estimate.  What will determine which Rate is the better deal, is what the payback time is for the Points associated with the 3.5% Interest Rate.  The payback time can be quickly calculated by dividing the cost of the Points, by the monthly savings in the mortgage payment.  The answer will represent the number of months that it will take to recop the cost of the Points.  In my opinion if it takes more than 4 to 5 years (48 to 60 months) to recop the cost of the Points it is not worth it.

One other thing.  An Interest Rate may only be good for a moment.  Interest Rates can change daily and even several times during the course of a day.  The change in Interest Rates are determined by the 10 Yeat Bond.  If the 10 Year Bond is doing good the Interest Rates may go down.  If the 10 Year Bond is not doing good the Interest Rates may go up.  The economic news throughout the day and week will determine how the 10 Year Bond will react, and how quickly it will cause a change in the Interest Rates.  The Interest Rate could be one rate in the morning, and a different one in the afternoon.  The only sure Interest Rate is the Interest Rate that a Borrower locks in once they have an accepted offer, and have chosen a Lender to do their mortgage with.

As you can see the question "What Is Your Interest Rate?"  may sound like an easy one, but it is not as simple as it sounds.  If someone just gives you a quick answer, be very careful.  You maybe in for some unpleasant surprises later, and they maybe breaking the law if they do not quote you an APR with the Interest Rate.

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  Info about the author:

 George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com