Why is my rate different then…?

When shopping for a mortgage one of the first things people do is look at advertised rates, while a good place to start that is just the beginning of questions to ask.

When a bank determines an interest rate these are the factors that determine the rate:

1. Credit Score – Banks will adjust your rate up or down depending on your score. Scores are set in 20 point brackets (620-639, 640-659, all the way to 740+) the best rates are given to borrowers with 740+ scores and the bank will raise the rate for each 20 point bracket below that.
2.  Type of Transaction – A purchase transaction gets you a better rate then  a refinance and a rate and term refinance gets you a better rate then a cash out (debt consolidation, home improvement etc) refinance.
3. Type of Property – A single family gets you a better rate then a two family and in some cases a purchase of a condominium is charged a higher rate.
4. Occupancy – An owner occupied property will get a better rate then an investment property.
5. LTV – Loan to Value, banks will adjust your rate based on your amount of equity in your home for a refinance or amount of your down payment in a purchase transaction.
6. Points – Every point equals 1% of your loan amount and is a onetime fee that gets added to your closing cost. Banks will use this “prepaid interest” or “points” to buy down your interest rate. For example if today’s rate is 3.75% the bank may say pay us 1% at closing and you we will give you a rate of 3.5%. Each buyer deal is different and sometimes this makes sense and other times it doesn’t.

In the end it’s a confusing process and best to deal with a professional mortgage banker or broker that will explain the process and pricing to you.

At Richmond County Mortgage we do just that by educating our borrowers!