Why the Interest Rate You See Online is NOT the One You’ll Get

Why the Interest Rate You See Online is NOT the One You’ll Get

Did an interest rate catch your attention the last time you were looking online?  Maybe you’ve been thinking about buying a home, buying an investment property, refinancing, or getting a line of credit, 

However, it’s very rare that the interest rate you see online will be the one you get.

There are many factors that determine the interest rate any of us receive. Here’s a great rundown for you or anyone you know planning on getting a mortgage or refinancing.

How Interest Rates Work

Let’s cover the basics first. Interest rates for mortgages can fluctuate on a daily basis, going up or down.

Freddie Mac posts the average U.S. rate for popular mortgages every Thursday after surveying lenders across the country. These are the rates that you’ll see or hear about in news media reports, especially when the 30-year fixed rate hits a record low.

Lenders Want Your Business so They Advertise

Some mortgage lenders promote their own interest rates on their websites. However, what you see isn’t necessarily the one you’ll get.

Usually these “promo” rates are really a best case scenario, and you’ll need to read the fine print to find out any restrictions or requirements. Most lenders offer several mortgage products as well, so the interest rate will depend a lot on what loan program you are in.

This is exactly why we do not post our rates online.

What Impacts Your Rate

Here’s a breakdown of the variables a lender will consider:

Credit Score – Your score and credit history play a huge role in what rate you’ll be offered. It lets lenders know if you’re a good risk or not as a borrower. A high score of 740 or more means you’ll get a lower rate since you’ve proved you’ve handled credit responsibly in the past. Even if your score is considered “good” which would be anything above 700, you could see a difference in the rate you’re offered between 700 and 740.

Also, the lower your credit score, you might see slightly higher interest rates because you are seen as more of a risk to repay the loan.

Down payment – There are different rates depending on how much you put down. The larger your down payment, typically the lower the interest rate because the loan is deemed less risky to the lender. A bank views your loan more positively if there is more equity in your home.

If you have less than 20% down, you will be responsible to pay private mortgage insurance (PMI). Anything 20% down or above, you would not be responsible to pay mortgage insurance.

Type of Property – Did you know that condos have slightly higher interest rates then single-family detached homes? A condo loan could be .125% to .375% higher since condos are viewed as having more risk. Other condo owners not paying their monthly condo dues may cause the condo fee to go up, which in turn could make it harder to make your mortgage payment.

Different Products – The interest rate also depends on the mortgage product. There are jumbo loans, FHA loans, VA loans, USDA loans, adjustable rate loans, and conventional loans — all of which have different rates, fees and requirements.

Loan Term – Usually loans with a shorter term have lower rates. A 15-year fixed rate loan will be lower than a 30-year fixed.  ARMs (adjustable rate mortgages) may have slightly lower rates depending on the product.

Loan Size – Conforming loans that meet Fannie Mae and Freddie Mac guidelines may have slightly lower rates than a Jumbo product.

As you can see, if you have one of the contributing factors listed above, your rate will be much higher than what is advertised out in the world. So, just be prepared.

Don’t hesitate to reach out to me with any of your questions on interest rates!  I’d also be happy to take a second look at any estimates you get to help you compare options.  Email me at jeng@firsthome.com, I’d love to help!