What factors determine the rate you receive?

Here are the factors that affect the rate you will likely receive and a graph to better illustrate these factors

• Economic Factors and current Fed rate policy: Inflation expectations and fears are the main driving force behind why rates move. In higher inflation times mortgage rates will rise since companies that invest in mortgage backed securities (MBS) want a higher rate of return to keep up with the pace of inflation. Numerous other economic factors come into play as well with job reports, Fed rate policy among the most influential.

• Home price, loan amount and down payment percentage: Your home price minus your down payment will determine how much you’ll borrow and what the loan to value will be. Higher loan amounts typically receive better rates and the lower the loan to value (LTV) the better the rate will be, especially on a conventional loan.

• On a refinance: the rate is highly affected by the loan to value (LTV). LTV is calculated by comparing the loan amount to the appraised value. Higher LTVs will have higher rates on conventional loans.

• Loan term: Shorter terms (like a 15-year or a 20-year) typically have lower interest rates than a 30-year term.

• Interest rate type: Interest rates come in two basic types: fixed and adjustable. Fixed rates do not change over time. Adjustable rates, on the other hand, have an initial fixed period then go up or down based on the market. For example, a 5-year ARM loan will have a fixed-rate for the first 5 years and then the rate will fluctuate from the 6th year onward.

• Loan type: Different categories of loans (Conventional, VA, FHA and USDA) have different rates. Government backed loans like VA, USDA and FHA typically have rates as much as a half to one full percent better than conventional loans do.

• Credit score: Based on credit report information sourced from the 3 major credit bureaus, Transunion, Equifax and Experian. Each bureau has a different formula that results in a credit score -- commonly called a Fico score --based on your credit history and credit usage as well as available credit. Lenders use the lowest middle score of all borrowers. The higher the credit score the better the rate received.

• Property type & occupancy status:  Primary residence gets the best rate followed by a second/vacation home and then higher still is a rental property.  Condos, manufactured homes and even rural higher acreage properties typically will have higher rates.

• Higher lender fees: Paying points and other lender fees will typically lower the rate offered. For example a zero lender fee loan can be as much as a half percent or more higher on the rate than a loan where 2 points are paid (1 point is one percent of the loan amount).

• Many online lenders use manipulation tactics to quote low rates with hidden or obscured higher lender fees. Often people only pay attention to a rate and not how much that rate costs--and this leads to these types of lenders appearing to be the "lowest rate lender" when in reality they are not. They are tricking you.

• Paying points to bring down the rate is only a good idea when rates are at a low level since high rate times--like when this is written Fall 2025-- rates are at a higher level and paying points to buy down the rate now often takes 4-6 years to break even (higher lender fees paid at closing will reduce the payment but it takes awhile for that lower payment to makeup for those higher lender fees). And when rates improve--as expected by the experts going forward in 6-18 months, most people will likely refi to a lower rate, well before the breakeven point --which results in all those lender fees paid to reduce the previous rate a wasted expense.

Another common problem with getting a rate quote

You often get one quote from Lender A on Monday, Lender B on Tuesday, and Lender C on Wednesday. Rates can change daily, sometimes multiple times. Therefore unless you get all your quotes at the same period of time, you don't have accurate information

and may end up going with the wrong company.

Many lenders purposely quote rates lower via their web sites to simply get you to stop shopping around. This is especially true for purchase loans, as you most likely will NOT be in position to actually lock that rate today.

THE ONLY RATE QUOTE THAT MATTERS IS THE DAY YOU LOCK.

DID YOU KNOW? You can usually pick any interest rate or total lender fee you want. Just understand selecting one always affects the other. Want lower lender fees? Your interest rate goes up. Want lower interest rate? Your lender fees go up!

Be wary of a lender with significantly lower rates and closing costs than anyone else.  All lender rates are derived from the same mortgage backed securities market

(MBS) - with larger lenders typically needing a higher profit margin-- they charge more to cover their increased overhead.  The bigger the lender, the bigger their overhead. They have to charge more to pay for those high priced TV ads and stadium naming rights.

Smaller, well managed lenders --like a mortgage broker are often much cheaper than big lenders. mainly due to much lower overhead.

What you pay is the wholesale cost of money plus the lender markup--and all lenders--big and small-- have pretty much the same cost of wholesale funds.

So it's their markup, or gross profit that decides how much that lender charges on a given day. the markup is a combination of points, origination fees and other garbage fees like underwriting, admin, funding fee, and super high loan processing fees.

And another way a lender increases their profit is by charging a much higher than market rate while reflecting super low lender fees. However the rate is way way higher than it should be. Higher rates means more money flows to the lender upon delivery of the loan.