Do Interest Rates Vary from Lender to Lender, and why?

Although lenders get interest rates from the same place (mortgage interest rates are largely based on mortgage backed securities sold on the bond market), they can vary from lender to lender. There are a few reasons for this.

Top Three Reasons Interest Rates Vary

Lack of Full Disclosure

This is the most common reason I see a variance in interest rates. When you are comparing lenders you must compare apples to apples! That means getting a loan estimate from the lenders you are comparing on the same day, and ensuring all the fees are present. The number one thing to look out for is the cost (This has many names- points, discount, buy down, origination, etc) of the rate offered. Also, be sure its the same program and product. Then you can see if the lower rate really is a good deal. If you are comparing me to another lender I will help you with this!

Buying Market Share

Sometimes lenders, especially big banks, will try to win a portion of the market and keep current customers. One way to do this is to run a special for a limited period of time, on a limited number of products. For example, a lender might offer a 30 Year Fixed loan for .5% lower than the rest of the market and make little to no money on the loan. To make up for that the lender may hike up interest rates after the promotion is over. It is wise to read the fine print with a discerning eye. Also keep in mind you will not get the service you get with a dedicated Mortgage Banker like myself who values their relationship with you. If you have a question about an offer like this I am always happy to help!

Niche Pricing

Some lenders build their business on certain mortgage products. Their pricing for those products may be undercutting the market, whereas their interest rates and/or fees will be higher on other products. One example of this is a lender who specializes in “Jumbo” loans. Those are loans over $560,000 in Washington state. This lender might have awesome rates on a large Jumbo loan, but higher interest rates on a Conventional loan amount.

 

Tune in below for more on how you can be sure you’ve got a good deal.

 

Mortgage Interest Rates: The How and Why

By far the question I hear the most about mortgage interest rates is “how can I keep track of whether they’re moving up or down?” The short answer is the bond market. Mortgage interest rates are largely determined by the sale of mortgage backed securities on the bond market. So if the bond market is doing well, on any given day, interest rates will go down. If the bond market is performing poorly, interest rates will go up.

Mortgage Interest Rates and the Bond Market

Bond Market Vs. Stock Market

The bond market moves opposite to the stock market. This is counterintuitive because, as Americans, we often think “hey the stock market is doing great so is everything else.” That is true for your investments, that is true for the American economy in general, but it is not true for mortgage interest rates. The bond market is considered a safer investment and thus is one made by investors when the economy is not doing well. That is why interest rates move down when the economy is not doing well, whether that’s on an isolated day, or over a long period of time.

The Fannie Mae Coupons

Fannie Mae Coupons are what we, as mortgage lenders, typically track everyday. If we see, for example, the Fannie Mae 3.5% coupon move up 40 basis points, that is a good day and we can expect an interest rate reduction. The opposite is true if that same coupon moves down 40 basis points.

Timing and economic climate

When considering the above, if the Fannie Mae coupon moved up 40 basis points in one day, that is generally great news for interest rates. However, if we are in a climate where the Fannie Mae Coupon is moving up 40 basis points everyday, we may want to wait to lock in. If we are in a climate where the Fannie Mae Coupon is moving less than 10 basis points a day, that was a banner day and it’s a good time to lock. Also to be considered is the transaction time period. Regardless of the above, if the loan is closing in a week, it’s time to lock. If we have 60 days, we may wait, if the economic climate is favorable.

If none of this makes sense to you, that is ok! You have a mortgage professional who will track the bond market’s movements and advise you on the best time to lock in your interest rate, for your specific program and product, within the time frame you are purchasing or refinancing.