How To Read A Mortgage Rate Sheet
Do you want to learn how to read a mortgage rate sheet? Getting your hands on a mortgage rate sheet can help you to negotiate with a mortgage lender, as you will be able to see the profit margin they are making on you, especially if you get a wholesale rate sheet (the ones mortgage brokers use).
- Choose the program. The main categories on the mortgage rate sheet will reflect the program, such as 30 Year Fixed, 15 Year Fixed, 3 year Adjustable Rate, etc. There can be hundreds of different programs, for our example we will focus on the plain vanilla Conforming 30 year fixed.
- Look for the par rate on the sheet. This will be the rate at which there will be no points charged to you to get that rate, and also no rebate, servicing release premium (SRP), or yield spread premium (YSP) available for either yourself or the lender. Rebate, SRP, and YSP are basically the same thing: money available in exchange for a higher rate. Usually this is enclosed in parentheses or expressed as a negative number. You might see a par rate of 5.000 @ 0.000 and a rebate price of 5.125 @ (0.250), meaning that on a $100,000 loan, there is a premium of $250 that the lender can either keep for himself of give to you to lower your cash-to-close. The opposite would be a price with discount points, meaning you must pay for a lower rate. In this case that rate might be 4.875% @ 0.250, costing you $250 in extra cash to close that loan at that rate.
- Calculate your adjusters. That par rate is just the beginning—every loan has adjustments to price based on risk. So if your loan to value is high, say 90%, there may be an extra fee of 0.500 discount points. If your credit score is really high, there may an adjustment going the other way of, say, (0.375). Assume these two are the only adjusters, adding them together will result in a total adjusted price of 5.000% rate @ 0.125 (since it’s not a negative or in parentheses, it’s a cost to you, remember that).
- Be aware of surprises. Sometimes, there are adjusters which aren’t on the mortgage rate sheet you are looking at, but the lender or end purchaser of the mortgage tacks on, like an adjuster for certain depressed markets. So even if you think you have figured out your rate of 5.000% @ 0.125 discount points, when the loan is underwritten there may be a surprise add-on of 0.250 or more, making the loan more expensive. In our example, we are now at 5.000% @ 0.375 points after that surprise adjuster. It is impossible for any loan officer to have all the adjusters memorized, which is why you sometimes get misquoted at first. Most lenders aren’t trying to deceive you, really.
- Negotiate. If you have figured out your mortgage rate should be in that 5.000% @ 0.125 range after adding up your adjusters (and before anyone knows about the “surprise” adjuster we just mentioned in our example), and your lender quotes you a rate of 6.000% with 3.000 points, you know something is up and can ask him where he gets those calculations from. It is reasonable to expect a lender to generate about 1% in profit, so a good rate quote by a mortgage broker would be 5.000% @ 1.125% in points, giving him a profit of 1% in origination fee and paying the lender the required 0.125 in discount. If the loan amount is big enough and the broker is hungry enough you can probably get that down a bit, reducing the broker’s paycheck and saving you some money.
It pays to know how to read a mortgage rate sheet, but remember that these rates change daily, sometimes even two or three times per day. Use them as rough guidelines only.