Mortgage rates change every day, sometimes multiple times throughout the day. So when you get prequalified and start looking at houses, it is important to keep in mind that your rate could be higher or lower depending on the market when you are ready to pull the trigger. (Hopefully lower!) Depending on the day, it may or may not pay off to look at options for getting a lower interest rate by “paying points.”
Due to the nature of rates changing so frequently, there is no one bank that always has the lowest rates.
Sometimes Chase is lowest, sometimes it is Wells Fargo, sometimes it could be a company no one has heard of. Unless your bank happens to have the lowest rate on the day you’re ready to lock, they will not be able to offer you the lowest rate. Private mortgage banks, underwrite, approve and fund your loan with their own money; but have relationships that allow them access to the rates and loan programs of other banks. Because of that, a mortgage banker can almost always offer you a lower rate than you would get by going directly to a retail bank. Your banker, essentially, will do the shopping for you, and simply lock your rate with the lowest priced bank. They will also have access to many wholesale banks that are not available to individual borrowers.
Keep in mind that online rates are used as a marketing tool
If you shop rates online, you will find plenty of banks advertising lower than market rates. The problem is figuring out which ones are legitimate and which ones are bait-and-switch. Keep in mind that online quoted rates are a marketing tool, not a reflection of current market rates. They are designed to hook you in to doing business with the advertising mortgage company.
Here are a few things to watch out for when comparing rates online:
1. Every rate quote is a custom quote
Down payment amount, property type, occupancy, credit score, loan amount, location and other factors directly affect your interest rate. When you see a rate quoted online, it usually assumes a large loan amount, 20-25% down payment on a primary residence with a 760+ credit score. If your situation doesn’t exactly match, they will end up changing that rate on you later.
2. Discount Points/Origination Fees
In lending, there is a tradeoff between rates and fees. To get the lowest rate, you pay higher fees. To get lower fees, you pay a higher rate. Lenders use this to skew quotes by offering a rate that is only available by paying points. In some cases, they may even state it is the “zero points” rate, but you will find out later they are charging you an “origination fee.” Whether they call it points or origination fees, it is the same thing: fees based on a percentage of your loan amount. You need to find out exactly what lending fees they are charging you independent of the interest rate you choose.
3. Lock Period
When you have found a house and are ready to move forward with a loan process, you lock in your rate through your contract closing date. This is generally 45 days in today’s market. However, online lenders tend to quote 15 day lock pricing. The longer the lock period, the more costly it is. A 15 day lock may appear less expensive, but if your loan can’t be closed in 15 days, that’s not a valid rate lock. Chances are the online rate will change once you try to lock in through your closing date.
We want to be your mortgage lender!
We hope this information helps you in your search! If you are shopping in CA or AZ, The Jackson Team wants to be your mortgage lender! Our rates are always very competitive. We are going to be straight with you. We aren’t going to quote you something we can’t deliver on. And we’re going to get you a great rate. For a live rate quote, please fill out the quick form below and we will be in touch as soon as we can.
You may also like our article about Where Mortgage Rates Come From