A lender may get daily rate sheets from
their secondary marketing department or from wholesale mortgage lenders.
These mortgage interest rates are usually not for public view, because
they show the price of a home loan before the retail mark-up.
On the rate sheet, incremental mortgage rates correspond to the cost
of the rate expressed in terms of “basis points”. One point is equal to
one percent of the loan amount.
The rates with numbers in parenthesis next to them indicate “rebate” points
paid to the lender for selling a loan at a premium. The rates without
numbers in parenthesis show the lender’s “cost” to sell a loan at that
particular interest rate. The rate with corresponding zeros is the “par”
price, which means the lender incurs no cost and they receive no rebate
points for that mortgage interest rate.
Lower mortgage rates have a higher
up-front cost because the mortgage holder earns less interest over the
term of the loan. Conversely, higher rates have lower short term
costs because the mortgage holder will earn more in interest over the
life of the loan, rather than points paid up-front.
In order to quote mortgage interest rates,a loan officer or broker adds points to the wholesale rate sheet
pricing, which is essentially a commission. The lender normally sets a
policy on the minimum and maximum points the loan officer adds to the
rate cost. This pricing structure provides flexibility to offer lower
mortgage rates with higher points, or a zero point mortgage at a higher
rate.
Current rates on a lender's website have already been adjusted to show a retail price.
Written by
Rick Smith of MyRealtyTimes
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