Interest Rate FAQs
Interest Rates are influenced by the buying and selling of mortgage backed securities on Wall Street. Lenders set rates daily based on the influence of the bond market. Generally, when the bond price increases, mortgage interest rates go down. Conversely, when the bond price goes down, mortgage interest rates will generally rise. The movement on the bond is influenced by many factors including the stock market, economic reports that give a read on the economy as a whole and to some extent even basic world news. All of these factors can cause the bond market to move and influence rates on a daily basis.
Rates are set by all lending institutions each business day in the mid morning. This allows the banks to get a morning read on the markets and to digest any economic reports that were released that morning. Once we receive all of the rates from our many sources, we compile them into a daily rate sheet for the loan officers. Usually this occurs about 10:30 – 11:00 AM. During the day, rates can be influenced by daily factors and lenders may re-price during the day to keep up with a changing bond market. Generally speaking, once interest rates are released, they are good until 4:30 that afternoon.
Many factors influence your interest rate. Credit, loan amount, loan program, down payment and property type are just some of the factors that can influence your rate. Your loan officer will take all of these factors into account when he quotes you your interest rate. Check with your loan officer for specific rate quotes for your loan program.
Do you plan on keeping your loan for a while? Then it may make sense to “buy” a lower interest rate by paying one or more “points.”
Even if you’re unsure of how long you plan to keep your mortgage before you move or refinance, paying points now for a lower rate may make sense. For example, do you have a high-paying job now but you think you might change careers in the next few years? We can help you sort it out. It’s part of our goal to find you the right loan for your means and future.
A point — which equals one percent (1%) of the total loan amount — is an up-front fee that lowers your annual interest rate and total interest due over the life of your loan. So, a one point loan will have a lower interest rate than a no point loan. Basically, when you pay points you trade off paying money later in favor of paying money now. You can pay fractions of points, meaning there are a lot of points packages that can make a loan’s terms more favorable if that’s what’s right for you.
There are a variety of rate and point combinations available. When you look at different loan programs, don’t look just at the rate — compare the whole package. Federal law requires lenders to publish their loans’ Annual Percentage Rate, or A.P.R. The A.P.R. is a tool used to compare different terms, offered rates, and points.
You’ll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to “why” is that federal law requires the lender to tell you both.
The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. for your loan is not the actual interest rate that is used to calculate your mortgage payment. Instead, it was designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate because that is an easier thing for a consumer to compare. This way, lenders can’t “hide” fees and upfront costs behind low advertised rates.
While it’s designed to make it easier to compare loans, it’s sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.
The A.P.R. on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change. But ARMs were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make — that’s why they’re variable rate in the first placed!
So, A.P.R.s are at best inexact. The lesson is that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.
Note: when you’re browsing for loan terms, the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you’ll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time. Again, the best advice is to ask your loan officer for help in deciding the best loan and rate for your needs.