OBTAINING THE LOWEST POSSIBLE RATE
The factors that have to do with securing the lowest possible rate have less to do with scouring ads and more to do with the particulars of your own transaction. When lenders advertise, they will typically pick the best scenario as the basis for their ad (i.e.. Highest credit score, lowest LTV). Unfortunately, that rarely applies to all that are in the market. Unless you took the time to read the disclosures, this can often feel like a bait and switch.
LOAN LEVEL PRICE ADJUSTMENTS (LLPA’S)
The differences between rates are based on LLPA’s or risk factors. If you’re making a smaller down payment or have a low credit score, this is generally perceived to carry higher risk. Lenders or the investors that purchase the Mortgage Backed Securities that most loans are turned into want to be compensated for that. This is achieved through slightly higher rates which translates to a higher yield or rate of return to the investor or lender.
LOAN TYPE MATTERS TOO
Example: An adjustable rate mortgage (ARM) can provide a lower start rate than a fixed rate mortgage. This is because the rate will adjust to match the market over time. In turn, this reduces the risk of money being locked at a low yield if rates rise and in exchange, investors are willing to discount the first year or years of the loan.
SHORT TERM LOANS
Such as 15 years return to the principal lent at a faster pace and that assures the loan value will shrink faster too. This decreases risk and accordingly, provides for a lower rate. Shorter terms carry higher payments and lenders are just as careful in the qualification process with these as they are with any other loan. Lower risk coupled with prudent underwriting = lower rates.
You can also see that as credit scores improve, the rate differential for LTV changes is less pronounced. Hence, the combination of certain factors can work together to impact your final pricing. Example: For a 5/1 ARM if you have 750+ credit score the rate difference between 70% and 90% LTV is .5% vs. a 679 credit score where the difference is a full 1%. The bottom line becomes one of scenario management and this is where PRMI excels. Reach out anytime and we will work together to help obtain the best and smartest possible financing for you particular situation and needs.