Although it seems as if changes have taken place in all types of businesses in recent years, those changes have especially been seen in the lending market. This is particularly the case in the mortgage industry, where issues occurred in 2008 that still have serious repercussions today. That is why it is important for lenders to take advantage of all the tools that are open to them to benefit, not only the lending institution but also the borrower. It is a win-win situation, which can also help to drive additional business in your direction.
One important part of the lending process is determining the best execution rate for the borrower. Although there is much information that could be discussed about the execution rate, it can really be broken down into basic terms. This rate is the point at which the amount of money that is necessary to buy down to a lower interest rate balances out. For example, it may cost you an additional 0.4% in closing costs to drop your rate to 4.0% but to drop an additional 0.125%, it may cost 1.2% more (Source: http://www.mortgagenewsdaily.com/consumer_rates/259880.aspx). Of course, these are arbitrary numbers but they are provided to help make the point easy to understand.
Using a pricing engine as a software solution can make it easy for lenders to achieve the best execution rate. It takes all of the factors into consideration and helps to balance out the numbers to make it clear as to where the balancing point exists. It can also help to display how long it may be necessary to continue to pay the lower percentage rate until the larger closing fees are going to be covered. In some cases, a customer may consider this to be a calculated risk and may go for the lower percentage rate, even though there is a higher closing cost.
The benefits of using a pricing engine to determine the best execution rate can benefit you and the company you work for in multiple ways. It is a convenience that your customer, the borrower is going to appreciate. This type of software allows you to stick with the lone prospect, nurture them and close the deal. It also helps with the communication process, all the way from locking the loan to the time when it actually closes.
When you consider the benefits of the pricing engine for the customer, it is also clear why many lenders are now using this type of software. Most borrowers do not understand the math behind the best execution rate, but the software can make choosing the best interest rate for their needs very clear. Of course, they are still going to look to you and your guidance in making this important decision as well.
Achieving the best execution rate and communicating this to the customer can help you to close more loans successfully. It allows for the short-term benefits of doing so and the benefits to the borrower makes it more likely that they will recommend you to friends and family that also need loans.
The author of this article is an expert in the mortgage industry. He has collected sources a variety of sources including http://loanlogics.com/loandecisions_overview.html to write this article. Feel free to connect with him over at Google+.