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Secrets of mortgage financing: What's my interest rate?

Get an accurate rate quote when you give a reputable lender your complete scenario.
Get an accurate rate quote when you give a reputable lender your complete scenario.

One of the first things eager mortgage shoppers want to know is, “What’s the rate today?” Or more specifically, “What’s MY rate?” It would be nice for comparison shopping to get a quick answer, like looking at the sign on the corner gas station. Mortgage financing is a little more complex, especially in the modern era of risk-based pricing.

Beware of the mortgage dude that starts quoting rates without gathering sufficient information first to give an accurate figure. Also, use extreme caution with the low-ball, probably long expired, advertised rates in the media.

First, your interest rate is based a multitude of factors and pricing can fluctuate throughout the bond trading day. Most days the opening morning price sheet does not change, although some sessions can produce multiple price changes in either direction. And remember your rate is not locked until the originator actually “locks in.” Reputable lenders would only quote real, lockable rates based on your specific scenario.

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Key factors that affect your rate

• Discount Points or Origination Fees: Your loan can be priced with or without origination fees and discount points. Many Georgia lenders use a 1% origination fee, although that can be reduced or eliminated with a slightly higher rate. Paying discount points, also calculated as a percentage times the loan amount, can get a lower rate.

For example, a $200,000 loan with 1% origination (costing $2000) and 1 discount point (costing another $2000) may reduce your rate from 5.25% to 4.875%. A cost-analysis should be performed, which is a fancy way of saying: How much is it costing you to save how much per month. And how long would it take to break-even? It probably doesn’t make sense to pay $4000 to save $40 per month, where break-even would be after 100 months or 8.33 years. The higher interest rate/ lower cost option may not sound as sexy at the neighborhood BBQ, but it might make better economic sense.

Loan Program Type: The standard is a 30-year fixed conventional loan. Rates are lower for shorter term fixed lengths like 15 years, or with adjustable rate mortgages (ARMs) with fixed periods of 3 – 10 years normally before the adjustment period kicks in. FHA, VA, USDA, and others have their own unique pricing.

Your Credit Score: One of the biggest factors for your rate – and even the ability to secure any financing. 620 is the normal bottom end and pricing adjustments improve about every 20 points, up to 740+.

• Loan-to-Value (LTV): LTV shows how much “skin” you have in the property. More skin, better rate. Certain programs give adjustments for LTV under 60%, 75% or if mortgage insurance is included.

• Occupancy Type: Owner-occupied is going to give the best rate and more program options. Investment property is the highest risk and therefore the highest rate.

• Loan Amount: In Georgia, higher non-conforming “jumbo” rates start over a $417,000 loan amount. Smaller loan amounts under $100,000 may also include pricing hits.

• Other factors that are used in the pricing matrix: Purchase or refinance, documentation type, debt-to-income ratio, property type and length of lock term.

So what’s my rate? Well, it could be anywhere from 3.75 to 6.75, depending on your specific scenario.

Get a pre-qualified and an accurate rate quote now!


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