Read about Current Interest Rates, Rate Calculations and Pricing, for real estate mortgages.
When you ask, “What is my interest rate going to be?” it may take the mortgage loan originator a few minutes to answer. He has to run your credit to find your credit score, this is why.
To begin with, the mortgages base interest rate depends on the loan program you want and if you are buying a new home, getting a rate and term refinance, or refinancing a home and asking for cash out.
A few years ago, FHA did not make price adjustments to the interest rates, unless you had a manufactured home to finance. Today, as the sub-prime lenders did before them, both FHA and Conventional loan programs make several interest rate pricing adjustments to compensate for the risk of loaning to one borrower or another.
The loan originator begins with a base interest rate, for your loan program, according to the lenders schedule of current interest rates. From there, he adjusts the rate by using pricing adjustment fees the lender supplies.
Credit score adjustments are the most common. For FHA, the credit score
adjustment steps are, 600 – 639, 640 – 659, and if your credit score is over 720, you actually get an adjustment in your favor.
Conventional loans adjust, for not only the credit score, but for where that credit score is placed, according to the loan to value. The higher the loan, compared to the value of the subject property, the more the risk is for the lender, so the adjustment is larger.
Pricing adjustments differ from direct interest rate adjustments. The adjustments are often smaller than you expect with a current interest rate, where 1/8th is the smallest adjustment to an interest rate.
With the conventional loans, there are twice as many categories for credit scores and seven categories for loan to value. This “A Paper” pricing matrix displays all the combinations.
With FHA, additional adjustments are for interest rate buy-downs, loan sizes smaller than $75K, loan sizes smaller than $125K, loan sizes larger than $417K (the current county loan limit), non-owner occupied property loans, and manufactured homes on permanent foundations.
With the commercial loans, pricing adjustments are made for the loan type, if you will have impounds or not, if the loan size is less than $75K or $125K, how many units you want to finance, such as a duplex or triplex or 4 units, if it is a condo, or if it is a manufactured home. Here are the Loan Limits for 2023.
When you see an ad on the internet, or elsewhere, the interest rate they advertise will be the base rate, without any adjustments. You can get that rate if all goes very well, and you are the perfect buyer or borrower.
In addition, current interest rates change all the time, in a volatile investment climate, the rates may change three times a day. My advice is, when you compare interest rates, compare apples to apples. Make sure all the adjustments are calculated for you. If your credit isn’t perfect, there will be adjustments, and as you can see, there could be many, depending on your loan program.
If you would like a current, accurate, interest rate comparison, please call and I will calculate it for you. Just visit my contacts page for the information on the contact method of your choice.