www.lasvegasmtg.com Report: The Untold Truth About Par Rate
By John Le Francois
www.lasvegasmtg.com Report: The Untold Truth About Par Rate is different for each individual borrower! Investopedia.com defines Mortgage Par Rate as: An interest rate used as the reference point for which a Mortgage Lender will neither pay a rebate ( Yield Spread Premium or Negative Points ) or require discount points for a Mortgage.
With the definition from Investopedia.com we have as the basis that a Par Rate would be a zero YSP and a zero cost to the borrower. In today's market a Par Rate is as unique to each borrower as their finger prints are unique to every other person in the world. Why is this even remotely possible? I'm glad you asked.
Every Investor has a different risk tolerance that is reflected in their rates they post each day. The higher the risk the higher the rate. I will only be using one of my primary lenders for this article and their Pricing Adjustment. Risks are the overlays the lender have defined by these factors:
Conventional loans have 7 different Adjustment hits for determining par rate.
Conventional Loans can have as many as 6 Adjustment hits for loan amount.
FHA and VA loans can have as many as 4 Adjustment hits for loan amount.
Conventional, FHA, and VA loans have 1 Adjustment hit for State Location.
Building Type, SFR, Condo, Duplex and Fourplex.
Conventional Loans can have 4 Adjustment hits for building type.
FHA and Conventional Loans do not have any Adjustment hits for Loan Type.
VA has 1 Adjustment for Loan Type.
FHA and VA do not have any Adjustment for Owner Occupied.
Conventional Loans for Owner Occupied and 2nd homes do not have any Adjustment hits.
Conventional Loans have two Adjustment hits for Investors and LTV.
Loan to Value
FHA and VA Loans do not have Adjustment hits for LTV.
Conventional Loans can have 4 Adjustment hits for LTV that are also tied to FICO Scores and Occupancy Type.
As you can see there are so many variables that can determine what Par Rate would be based on specifics to each borrower and co-borrower that no two borrowers would have exactly the same rate. The last factor is the volatility of rate changes that can and do occur on a daily basis. Locking the rate in the morning could have a different result in the afternoon.