Most people want to know what they can do to get a lower interest rate. When a person thinks about all the ads that are “out there,” showing how certain banks or lenders are offering the lowest mortgage rate or lowest interest rate possible, it’s no question why this is everyone’s main focus when they begin searching for a home loan.
For those who are searching for a home loan and want to get the right mortgage rate, there are certain things they need to understand.
How Lower Interest Rates May Wind Up Costing More
To fully understand how this works, a person has to fully understand how their interest rate is selected in the first place. On the surface, a person goes to a bank or a credit union, applies for the loan, and then the bank offers a rate – they can take it or not. However, there are a few things that are going on behind the scenes.
It’s important to note that there is not a single rate, instead, there is a range. Also, credit unions and banks are not always required to disclose how much they are making on the back end.
The Range of Rates
Every bank has something that is called a “rate card.” This is a list of the range of rates along with the “pricing” that corresponds with the rate. There is also a pre-set par rate. The par is the line that puts a separation between the costs and the credits.
If the rate is over par, then it will come with lender credits that can be used for the closing costs. If the rate is below par, there will be more costs that are required to be paid at the time of closing to “buy down the rate.”
Additional Factors That Must be Considered
There are other factors to consider, as well. For example, the loan-to-value ratios, the credit scores and the other factors are going to result in the pricing shifting up or down.
Consider the Options Carefully
It is important to take the time to consider all the options very carefully. Don’t just jump into a home loan because buying a home is the end goal. Instead, get to know all the factors that play a role. Reach out and talk to Fellowship Home Loans so that we can better serve your needs!
