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

How to Get the Best Mortgage Series – Week 5

Follow this series to learn how to get the best mortgage for your specific financial situation and goals. You’ll see what steps you need to take throughout this process to make it productive and successful.

This week you’ll learn why the interest rate you see advertised online is not the one you’ll get. There are many factors that go into coming up with the interest rate you’ll be offered. This is a perfect overview of what you need to know about as a buyer.

You see and hear about interest rates advertised online, on the radio, and TV. So when you call a Loan Officer, you might expect to get the interest rate that was advertised.

Unfortunately, that most likely won’t happen.

Ninety-nine percent of the time, the advertised interest rate will NOT be the interest rate you get!

Here’s why:

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

Many 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 an average of rates that they offer, and you’ll need to read the fine print to find out any restrictions or requirements. You may find in the fine print that you will be required to pay points to obtain the interest rate that is being offered.

So don’t assume anything just yet!

What Impacts Your Rate

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

Credit Score – Your score and credit history play a role in what rate you’ll be offered (this was covered in Week 4) It tells us if you’re a good risk or not as a borrower.

 A higher credit score may mean lower rates on certain products since you’ve proved you’ve handled credit responsibly in the past.

Down payment – Rates may vary depending on how much you put down. Most of the time, the larger your down payment, the lower the interest rate because the loan is deemed less risky – you have more “skin in the game”.

If you have less than 20% down, you may also have to add private mortgage insurance (PMI) to your monthly mortgage payment or within your closing costs.  However, I like to stress that you can still get a great loan for less than 20% down, so don’t feel like you need to wait and save the full 20% before you become a homeowner.

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 we view condos as more risky. Other condo owners and your homeowner’s association are involved when you buy into a condo association.

Different Products – The interest rate also depends heavily on the mortgage product. There are jumbo loans, FHA loans, VA loans, adjustable rate loans, rural housing loans, down payment assistance loans, and conventional loans — all of which have different rates, fees and requirements. Again, there is no one-size-fits-all when it comes to home finance and that’s why I am here to help you determine what you qualify for and show you your options.

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. 

Loan Size – Larger loans usually have higher interest rates, but not always. If you need to borrow more, the loan is considered riskier. Jumbo loans also tend to require larger down payments.

Occupancy – It makes a difference if property will be your primary residence, second home, or investment property. Interest rates are best on a primary residence purchase.

Market Fluctuation – Interest Rates that you see today may not be the same rate that you are offered three to four weeks or even three months down the road. They move up and down daily, like a stock price. Interest Rates typically love negative news. (They love a bad economy, they love unemployment, they love recession.) You can lock in your rate once you have a ratified contract and are within a certain numbers of days of closing.

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

Understanding Your Options

Since there are so many factors that go into the interest rate your offered, we do not post rates online.

When we work together, I pull all of the loan options that are available to you. We set up a consultation over a screen share so we can go through all of the costs along with pros and cons of each loan type available. We discuss the rates available to you during that call so you always know your options!

As you can see, there’s a lot that goes on in coming up with an interest rate. So don’t be disappointed if the rate you see or hear advertised isn’t the one you get.  I can help you find the very best possible interest rate and loan program for YOUR needs and particular situation, so email me at jeng@firsthome.com whenever you are ready to talk and we’ll get a plan in place before you want to start looking at homes.