Getting a rate today is like shopping for a car.  You start with the basic stripped down model and then you build from there.

 

What do I mean? It goes like this, when you hear the advertised interest rates, they claim to be 5% or below.  (Actually today, they went up a lot.) From there, the lender will build on your rate and fees (points) and increase from there. It is almost going to the Mercedes dealer, thinking the base price is what you will pay. Then you find out you have to pay extra for the seat heaters, the brilliant blue metallic paint and the sunroof. Oh, don’t forget the GPS.  That might not be the best example because you are getting upcharged for good things. However, with a mortgage rate, you are getting upcharged for bad things.

 

So, you start with your base rate of 5% and then they add to it for the following items:

 

·        FICO score

·        loan to value

·        loan amount

·        number of units

·        primary residence or investment property

 

Each item will add a little to your rate. For instance if you are buying a 2 family house, your loan amount is 800,000 and your FICO score is 639 this is how they will calculate it:

 

2 units: bank charges 1 point

Conforming jumbo high balance loan bank charges 1 point

LTV over 75% with a credit score under 720: bank charges 1 point

 

So, to compare apples to oranges as they say, to get the rate of 5%, you will have to pay the bank a fee of 3% of your loan amount. (One point equals 1% of the loan amount. On a $100,000 loan, 1 pt is $1,000.) If you did not want to pay fees and took a higher rate instead, your rate would be up to 6.5%.

 

The skinny is that what you hear is not what you get, so make sure you understand how they come to your rate with your special situation!  Ask questions!

 

Dale Siegel