How to read a lender rate sheet:
How on-line lenders bait & switch and use "Fine Print" to mislead you!
Okay, this is going to get technical - have hope, however, it's not that long. So, get out your calculators and we'll get started...
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But, before we begin, here is something you need to know: If a number is bracketed ... (.125) ... it means it is a CREDIT to the pricing. |
We will use the following scenario for our example:
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Purchase transaction of a low-rise condo (by most lender's definition, 4 stories or less)
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$162,000 purchase price
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10% down (loan will equal $145,800)
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700 credit score
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30 year fixed, full documentation
Every lender rate sheet is different, but mainly consist of (at least) 2 main parts:
- The rates
- The adjustments
The Rates:
So, what does this mean ... in English? Pay attention to the red blocks below. On a 15 day lock, 4.500% is PAYING (.104%) and 4.375% is a COST (AKA: Discount Point) of .319%.
The adjustments:
In our scenario above, it doesn't sound like there will be many adjustments to the pricing (30 year fixed, full documentation, VERY good credit) and, thus, have little affect on the interest rate? Right? Think again...
The adjustments aren't many, but they have a HUGE affect on the final interest rate offered to the borrower:
Our final adjustments are a COST of 1.250%. So, we must go to the rate sheet above and find a rate that is PAYING at least (1.250%) to off-set our COST of 1.250%.
So, what's our final rate???? 5.125%
|
Rate |
Pricing |
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5.125% |
(1.329) |
|
Adjustments |
+ 1.250 |
|
Final Pricing |
= (0.079) |
This is where on-line lenders bait & switch and deceive their clients! They can, legally speaking, advertise the 4.500% rate because it is paying back (meaning, they can offer it to the client without a cost to them for it). What they don't advertise is the adjustments that go along with EVERY SINGLE loan that exists.
So, next time you're in the market for a home loan, whether purchase or refinance, please consider giving KMG Mortgage Group a call. We are local to North Idaho and Eastern Washington and will be happy to meet with you.
Maryellen Garasky
Mortgage Broker
KMG Mortgage Group
(208) 664-3600
(509) 638-3455
www.kmgmortgagegroup.com
MaryEllen - EXCELLENT POST!!! In my initial presentation with a new client, I also go through rates and adjustments as well as loan origination (LO) fess vs yield spread premium (YSP). As a correspondent lender, we have numerous lending sources and sometimes I will even compare one lending source with another and explain the benefits and drawbacks of going with one over the other.
By the time I finish with a client they are so much more informed about what they're getting and why.
MaryEllen - Great Post! Thanks! Clients, as well as agents, do not have a firm grasp on this and it is a critical part of their purchase.
What really gets me is the constant internet hype. I love having recourse against it. Thanks! (Now I'm going to study your post a little bit longer).
Donne - Thanks for the compliment. We, too, ere on the side of caution and educate our clients - by some accounts, more than they wanted to know. But, it works to set the stage that they are dealing with honest people who want to make a good living, but aren't going to rake our customers over the coals to do it. Thanks for stopping by.
Kent - If you have any questions, please don't hesitate to call. Rate sheets differ from one lender to another, so please don't think these are the only adjustments that exist - just know that they DO exist. Thanks for stopping by.
Maryellen
MaryEllen - come on down to South Florida where there is no mortgage insurance for condominiums because we are a class 4 distressed market so you have to put 20% down unless the building is FHA approved. Layer this on top of the bait and switch tactics used by the internet lenders who are telling you client that they can deliver 95% financing in your market at a lower rate and no lenders fees...it's loads of fun!
Great post! Bravo
James,
Wow, sounds like you have the making of some really good blog entries here. It's terrible how people getting taken advantage of in the name of the almighty dollar. Thanks for stopping by and have a great night.
Maryellen