Financing in 90046>Question Details

Schlacher, Home Buyer in Los Angeles, CA

why does the rate differ between lenders-is there any base rate? Where can I find lender's true rate?

Asked by Schlacher, Los Angeles, CA Tue Dec 8, 2009

Chase told me that after lock down they can renegotiate the rate before closing for no additional fee if the rate goes down. HOWEVER Chase doesn't even publish their rates online, so it is easy to say that they didn't go down when they actually might have..

So can you assume that if e.g. wells fargo lowers their rates, that chase most likely lowered them too? or is there a stock market trend or a fed release or anything they are principally based on?

What are the true current rates of lender? Can I find them anywhere?

e.g. is there a certain "base-rate" of the day and the difference in the rate that banks or lenders can give you is just their individual "rate add-on"?

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Hi Schlacher, regarding your questions:

"Chase told me that after lock down they can renegotiate the rate before closing for no additional fee if the rate goes down. HOWEVER Chase doesn't even publish their rates online, so it is easy to say that they didn't go down when they actually might have.. "

Consider asking for written details regarding the "float down" offered by chase so you completely understand the guidelines. For example, if you request the "float down" after loan docs have been generated you will likely incur a "loan doc redraw" fee. There may be other items to be aware of.


"So can you assume that if e.g. wells fargo lowers their rates, that chase most likely lowered them too?"

Yes and No. Rates are "tri-level adjusted." While the base rate is posted on the "rate sheet" using 1/8th increments (i.e. 5.000%, 5.125%, etc..), the rate lock duration and a slew of other rate adjusters come into play (ask the lender you are working with to explain how an example rate is constructed by walking you through a rate sheet.) Some lenders will be more aggressive than others as far a pricing.


"Or is there a stock market trend or a fed release or anything they are principally based on?"

Yes, Mortgage Backed Securities (MBS). Newscasters and business reporters routinely bring up the 10 Year Treasury and Fed Funds Rate as a barometer for mortgage rate direction; however, the 10Y Bond and Fed Funds Rate (the FFR does effect 2nd loans tied to Prime Rate) have "influential effect" with the determination of first mortgage rates but have a poor correlation. The "influential effect" I’m referring to is that MBS compete for investor dollars as does all other investment options.
This chart shows that the 10Y has a poor correlation to 30Y conforming rates:
http://docs.Steven-Anthony.com/10Yv30Y.pdf

The ONLY accurate barometer for mortgage rate trending is MBS - period. If you are the type of person who likes to be well-informed before making a financial decision you should enjoy reviewing the two following links as well:
http://docs.Steven-Anthony.com/SAR-HowMortgageRatesAreDeterm…
http://docs.Steven-Anthony.com/RateShopping-DoItRight.pdf


"What are the true current rates of lender? Can I find them anywhere?"

There are three primary conduits that you can use for your financing (retail, bank, and broker), which are described here:
http://www.trulia.com/voices/Home_Buying/What_s_the_advantag…

My suggestion would NOT be a retail lender so you are not locked into only their rates for the product you seek. Work with a true Mortgage professional. I would highly suggest you seek out a Certified Mortgage Planning Specialist. You can find one local to you here:
http://www.cmpsinstitute.org/

Given the fact purchasing a home is a significant financial commitment, ask the CMPS to perform a formal Pre-Approval, not a Pre-Qualification. You can read more about the difference here: http://www.Steven-Anthony.com/default.aspx?pp=39377 Certainly, in this market, you will not be taken seriously if you attempt to make an offer without a strong Pre-Approval letter.


"e.g. is there a certain "base-rate" of the day and the difference in the rate that banks or lenders can give you is just their individual "rate add-on"?"

There will only be a "base rate" if you are looking for an adjustable loan - these days, the 30Y is the best priced product in large part due to the FED's MBS purchasing that is winding down by the end of Q1 2010. For the anatomy of a rate, again, ask the professional you work with to show you how a rate is constructed using a "rate sheet" (the perfect time would be when you are going through the Pre-Approval process).

Best, Steve
2 votes Thank Flag Link Tue Dec 8, 2009
@Steve provided an excellent answer. Good job Steve!

I usually oversimplfy my answer to this most crucial of all questions involving real estate:
Mortgages are like gasoline. They're pretty much the same everywhere. One might pay $.06 higher per gallon at Chevron versus Arco but the prices at all vendors are always very similar. If one drops their prices, then every driver will flock to them until the others must drop their prices to compete. The free market dictates prices in Gasoline and most other things we buy.
Mortgage lenders are the same way. If one of them dips their rates down then borrowers will flock to them, and the other lenders will have to keep up to avoid losing out on business. It is in the best interest of the lender to give you the highest rate possible but by doing so they risk losing you as a borrower. They have to lend money to stay in business, so they must compete by lowering their rates. As a broker, I look at rate sheets from a dozen banks daily and they are all within .25% of each other's base rate. Where the lenders differ though is their rate "Add-ons". Some will penalize you for lower credit, property type, employment history, down payment seasoning or anything else they choose. It's up to the broker to know which lenders will offer the best rate for a particular situation. Most bank lenders can only offer the rate that their institution has, and if that institution adds on .875% to the rate for any borrowers with less than four years employment history then your 5% just went to a 5.875%. Don't worry that much about it, with the new mortgage guidelines as of January 2010 the borrower is made very well aware of all charges to be incurred in the loan and none of them are allowed to change. If they do, the lender or broker has to pay the difference.
To see current rates, I recommend Bankrate.com.
0 votes Thank Flag Link Wed Apr 7, 2010
Hi Schlacher ~

You have gotten some great information in this discussion. I would like a add a couple things.

Whenever you are comparing interest rates you HAVE to compare the costs associated with getting that rate from each lender. I have heard too many unfortunate stories from buyers who used the WF or BofA and ended up with closing costs that were unexpected and in my humble opinion ... out of line. What good is the rate if your paying unusual costs.

It doesn't matter who you get your financing through, bank or broker, the "par" rate for any given loan program will be relatively similiar on a given day. Make sure you are clear about the fees and commissons that affect the rate being quoted. If the loan officer is not willing to break it all down for you ... find another one who will.

Interest rates are very volatile so they rarely stay the same from one day to the next. Just like the stock market. You have to accept that once you NEED to "lock" a rate" ... its yours. I was surprised to hear you say Chase allows the rate to float down after locking. That practice among lenders has pretty much disappeared.

To Your Success,
Barbara
0 votes Thank Flag Link Tue Dec 8, 2009
Schlacher,
RateWindow will aggregate and show the best rates and guidelines for lenders who are connected with the loan officer you see on the RateWindow results page. If the loan officer prefers to do business with just one or two lenders, they may not always be showing the lowest rates or the most liberal guidelines, depending on who those lenders are, and how competitive their rates or guidelines are for that day or time. With regard to showing FHA rates, they are included in the rates that are shown. RateWindow doesn't make an initial distinction between FHA and conventional. If the FHA rate is better for the lender in question, then the FHA rate is what you will see. Most borrowers don't start out with the knowledge or intention of doing either an FHA or conventional loan, they just want the best rate. RateWindow makes this first inquiry by the borrower a transparent transaction, and is not intended to answer all possible questions until the borrower is able to talk directly to the loan officer. The key is the transparency. Thanks for keeping me involved in the conversation. I appreciate it.
Web Reference: http://www.ratewindow.com
0 votes Thank Flag Link Tue Dec 8, 2009
Thanks for understanding. I have to add this because there is a minimum of words required to give an answer...I understand the importance of rates, it's just like you said, faux rates.
0 votes Thank Flag Link Tue Dec 8, 2009
why I care about the rate: my credit union offers FHA at 4.75% with 1 (+1/8 without the point), chase is at 5.25 with 0 points- this is a difference of over $100 a month and close to $50k over the life of the mortgage!
rates do matter matter.
Why I asked the question: I previously was in escrow (countrywide/ BOA-never again) and for some odd reason, as soon as we locked our rate allegedly their rate didn't change despite that any other lender had huge rate drops during that period.
Oddly enough, u answered my questions- one should definitely negotiate BEFORE locking instead of trying to reason with market trends or later since any is a pseudo-rate in the first place.
Thanks
0 votes Thank Flag Link Tue Dec 8, 2009
The cold truth? There is no true rate. The rate is based on many factors: Loan to value, market conditions, secondary market, your credit, your employment, your income to debts, the color of your car. It doesn't matter. What are you looking for? Are you wanting the rates that we get from wholesale companies? It changes from lender to lender. If you're not a loan officer, you don't need to know the "true rate" even though there isn't one. We price loans based on how aggressive we need to be or how much our company requires us to make per loan to pay the W2 employees, the rent etc., or based on the quality of service we offer, or how fast we have to close. I can go to one company at 4.5% that will never close and use a different one at 5.25% that can close next week. One lender will offer a rate of 4.375% because they're new and need business and shoot the appraisal down, killing the loan, while another is at 4.875% and is established and is loose on appraisal issues. So, don't focus on rate as much and focus on your needs. Is Chase offering you a quick closing without a million conditions or are they asking you to give a pint of blood every day?
0 votes Thank Flag Link Tue Dec 8, 2009
@ Bruce
Thanks for the info, but unfortunately ratewindow.com neither gives rates for FHA or any conventional LTV above 80...unless I am overlooking something?
0 votes Thank Flag Link Tue Dec 8, 2009
All the answers to your question have been good, but . . . if you want to see exactly what your loan officer in seeing when it comes to wholesale rates, find a loan officer who uses RateWindow. As a consumer you can also go to http://www.ratewindow.com and see the wholesale rates, exactly the way the loan officer sees them when they are negotiating with you on the other end of the phone line. RateWindow makes the lending transaction totally transparent for you, and you see what the loan officer sees. The loan officer is required to publish their fee, and you are free to choose the wholesale rate, payment and freebate that is best for you. The freebate is the cost of the interest rate, and is usually the money paid by the lender to the loan officer on the 'back side' of the transaction. RateWindow affiliates are required to allow borrowers to use the freebate to offset closing costs, and earn their money based on the quoted fee. This eliminates the temptation for a loan officer to charge a higher interest rate so they can get more compensation from the lender.
Web Reference: http://www.ratewindow.com
0 votes Thank Flag Link Tue Dec 8, 2009
Thanks to all! It was very helpful!
0 votes Thank Flag Link Tue Dec 8, 2009
Good job John.

I just wanted to add that if you have a friend or family in the business (you might not have used them because they couldn't do the loan for you for whatever reason), any loan officer or mortgage broker could tell you if rates went up or down or stayed flat.

They have access to daily rate sheets and are aware of mid-day changes as well.

Ordinarily you are correct in assuming that if Wells' rates dropped significantly then it's because the 10 year yield is up and most banks dropped their rates.

I wouldn't stress about Chase lying to you about rates though.

Good luck.
0 votes Thank Flag Link Tue Dec 8, 2009
What Chase offered you is a float down. If they don't have a published daily rate, you might have to play the game and call them ocassionally and act like a new client and inquire about their current rates. It does not follow that if one lender lowers or raises a rate that all do but they do trend in the same direction. The easiest way to follow the trend is to follow the 10 year trasury bill. Most mortgage rates are priced off this rate plus a margin. So the 10 year treasury rate does not give you the mortgage rate but it does show the trend daily and over time. For instance, if you found a site that offered a quote on the 10 yr treasury (i.e. bloomberg.com) you will notice that the next to the base rate there is an indicator that shows the current yield trend. It will read something like +.15 or - .23 etc. If the figure is a negative, rates are trending UP; if it is a positive, they are trending DOWN at that moment. You can also follow the FNMA net yield for 30 yr loans but keep in mind this is not the rate you will get from a lender. So if you saw an index that showed the FNMA 30yr net yield at 4.75 don't call your lender and ask why they are quoting 5.00%. The FNMA net is net after FNMA costs. One other note a float down quote like the one you have with Chase will usually result in a slightly higher rate when you finally lock. Chase does not give you a free ride and take all the risk. Finally, good news on the economy is bad news for rates. Most experts think we are at the bottom and the news is getting better. Don't lose sleep over a .125 or .25 % in rate
0 votes Thank Flag Link Tue Dec 8, 2009
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