Learning how to read mortgage rate sheets benefits current and potential homeowners, investors, and mortgage loan originators. Wholesale mortgage rate sheets, specific to each company which lends mortgage dollars, provide information on different mortgage programs and associated rates, lending guidelines, and pricing adjustments. Understanding how to read mortgage rate sheets ensures a potential borrower receives the best deal possible.
To read mortgage rate sheets, you will need:
- Mortgage rate sheet, provided by the lender
- Familiarize yourself with the mortgage rate sheet layout. To read mortgage rate sheets, you first must familiarize yourself with the layout of the specific sheet you are reading. All mortgage rate sheets have three distinct sections: lending guidelines, different mortgage programs and pricing or rate adjustments.
- Understand lending guidelines. Lending guidelines provide the requirements potential borrows must meet in order to obtain a mortgage. Typical lending guidelines outline income requirements, loan-to-value (LTV) ratios, minimum income standards and credit score requirements.
- Find the applicable mortgage programs. All mortgage rate sheets are divided into several different programs. Examples of programs include conforming conventional fixed rate mortgages, conforming conventional adjustable rate mortgages, conforming conventional interest only mortgages, and jumbo fixed rate mortgages. Each different mortgage program proscribes different rate and point structures for a borrower.
- Locate the pricing adjustment boxes within the appropriate mortgage program. Pricing adjustments alter a rate a borrower must pay based on the use of the mortgage (cash out, primary residence, investment property), loan-to-value ratios, credit scores and mortgage amounts. Find pricing adjustments that apply to your situation and add up the associated percentage increases.
- Determine the mortgage term. Each mortgage program is divided into varying terms. The most common mortgage terms are 30 years (360 months), 20 years (240 months) and 15 years (180 months). Locate the box corresponding to your desired term within the appropriate mortgage program.
- Determine the mortgage lock period. Most mortgage rate sheets provide interest rates for 15, 30, 45 and 60 day lock periods. Within the mortgage term boxes, the lock periods are column headers reading across the page from left to right.
- Find the parity interest rate. Parity is defined as the interest rate where the mortgage lender receives no rebate; parity corresponds to the best rate you could possibly receive from the lender. Reading down a specific mortgage lock period column, find the number 0.000 or the number closest to it. If you had price adjustments, find the negative value in this column corresponding to the total price adjustments applicable to you. Read left from 0.000 (or the negative of the price adjustment values applicable to you) to determine the parity interest rate.
Most lenders will not lend at the parity interest rate. At this rate the lender makes no profit, so most mortgage lenders will add an eighth to a quarter point to the parity rate. Additionally, unscrupulous lenders will add significantly more.
Learning how to read mortgage rate sheets takes a little bit of practice. Once mastered, however, reading mortgage interest rate sheets becomes second nature. A solid understanding of mortgage interest rate sheets ensures mortgage lenders do not swindle borrowers.