What’s Your Rate?
I think I speak for most lenders when I say that the question “what’s your rate” always makes me cringe — especially when that is the first question a potential buyer asks. The main reason it concerns me is that even though it is such a simple question, it takes the right pieces of information to accurately quote a buyer’s interest rate. The loan program, term, loan-to-value, property type and credit score are just a few pieces of information we need to accurately quote a rate for any buyer. Although this comes as a shock to some buyers, we do need to make sure they qualify for a mortgage before discussing what interest rate options they actually have. With that being said, some of us throw out hypothetical scenarios such as “Say you have perfect credit and are putting 20 percent down on a conventional loan, what rate would I be looking at today?” Sometimes this may get you in the door, or it might result on the door getting slammed in your face depending on your mortgage company’s pricing on any given day.
A quote on an interest rate today could be meaningless in as little as 24 hours if there are drastic changes in the market. It is always important to inform the buyers that they are getting a quote as opposed to their rate being locked in. Most lenders require you to have an agreement of sale on a particular property to lock the rate, although some lenders have programs where you can lock a rate prior to getting a ratified contract. Also the amount of time you lock a rate for can also impact the pricing. Typically the longer you need to lock the rate for the more expensive it can be to get that rate your buyer really wants.
Another common question that lenders get is “does that rate have any points?” This is another important factor in answering the interest rate question. One point is simply one percent of the loan amount and is a charge for a lower interest rate. In an age when everything is just an internet browser away, many of the larger, national online lenders will advertise rates that require points. It will depend on the buyer’s personal situation as to whether or not it may be sensible to pay points to get a lower rate. On the other hand, a buyer could opt to take a higher interest rate and receive a credit toward their closing costs. If you can’t tell by now, the “what’s your rate” question isn’t as black and white as most buyers think it is.
There are laws regulating advertising in mortgages (Truth-In-Lending Act), but it is still easy to misinterpret what is actually being offered. If an interest rate is advertised, it is also required that the terms of the loan (30-year, 15-year, Adjustable Rate, Fixed Rate, etc.), including the APR, are also disclosed. If the buyer is not familiar with what an APR actually represents, they can easily think that the interest rate they saw online shouldn’t cost any points. I think I speak for most lenders and Realtors when I say we are probably all more comfortable working with local people who we know and trust to get the job done. With that being said, we all still have to sift through the smoke-and-mirrors approach given by many of the larger internet lenders across America to prove to the buyers that they are actually getting a fair deal on their mortgage.
An often overlooked factor when it comes to interest rates is the property type the buyer is purchasing. For example, multi-unit properties, investment properties, second homes and condominiums may all have pricing adjustments depending on the amount of money that is put down on the transaction. If the buyer doesn’t relay all the information to the lender, it can result in an incorrect quote which can become problematic for a number of reasons. Truth is, if the lender does his or her job and slows the buyer down, gathers all the information and asks the appropriate questions, the buyer will get an accurate quote of what can be done for their situation.
The amount of competition in the mortgage industry today is high. Margin compression has cut profits industry-wide; and every single deal is important to each originator, processor, underwriter and manager. We work in a relationship business where trust is earned over time based on the job you do and the service you provide a Realtor and their buyers. Be careful of the lenders who are out-of-town and just doing what they can to get the deal. A lender in Nebraska probably doesn’t care if they frustrate your buyer throughout the process or if they don’t return your phone calls regarding the mortgage commitment letter you haven’t received. “What’s your rate” isn’t something I consider a relationship building question as it’s obviously transactional. Don’t be afraid to explain to your buyers the importance of relationships, accountability and availability when they shop for their mortgage as you help them navigate the purchase of their next home.
David Fuchs, Traditions Mortgage
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