We often get asked is “What’s the interest rate?”. These days that’s a bit of a loaded question because any borrower’s interest rate depends on many different factors such as loan type, loan amount, property type, credit score, down payment/anticipated equity, cash out or not and whether the new loan will be a purchase or a refinance. All lenders (much like insurance companies) price interest rates to adjust for the “risk” associated with the various factors that are inherent to any mortgage.
When it comes to loan types there are several choices: Conventional, Jumbo, FHA, VA, Alternative Documentation, etc. Each of these loan types have varying rates that are dictated by the bond markets so as a result interest rates fluctuate daily and sometimes several times a day. For Conventional, FHA & VA mortgages there are two tiers of loans: those under $453K (called true conforming or “low balance”) and those between $453K – $679K which are referred to as high balance conforming loans and come with rates that are typically .25% higher than low balance. If you want to cash out that usually adjusts the rate upwards and if you get a tax & insurance impound account sometimes you get a bonus that helps the rate or closing costs.
Rates are priced in 1/8% increments which is not a perfect measure. On any given day the true interest rate is rarely priced exactly to the eighth so these days the borrowers either pay a few dollars to get the next lowest rate (called partial points) or they get a closing cost credit if they take the higher rate. For example, today the true rate might be 4.08% but since your choices are limited to 4% and 4.125% (AKA 4 1/18%) you will have to pay partial points to get 4% or you will get a lender credit if you opt for 4.125%.
Please ask us if we can help clarify any of this for you! For a free, no obligation quote on what interest rate you would qualify on a purchase or refinance, start here:
