What’s the Rate Today?
This is the magic question on everyone’s mind when purchasing or refinancing a home. Be wary of asking such an open-ended question though. The truth of the matter is that there are literally hundreds of rates available each day with a lender, so there is never just one rate. To start off with, there are different rates for each financing program – Conventional loans, FHA, USDA, VA, etc.
Get the Whole Story
Any genuine rate quote comes with assumptions such as qualifying credit score, financing program, amortization type (Fixed Rate, ARM, Interest only), and equity / downpayment for the property at a minimum. With all these factors being equal, a quality lender will be able to quote you different rates to meet your financial goals.
Zero Point Loan
The “Zero Point” loan is probably the most commonly quoted rate. When a lender says they are quoting a zero point loan, that means that you are not paying a fee for that interest rate. There are still closing costs associated with the loan, but you are not paying any fees or “points” to select that rate. From this interest rate you can also select a lower rate to pay points; you can also select a slightly higher rate which will allow the lender to give you a credit to offset closing costs. Let’s investigate further…
If you’ve heard the term “Paying Points” this means you are electing to pay a fee upfront to the lender in order to obtain a lower interest rate. By obtaining a lower interest rate you are banking that over time that the monthly savings will cover that upfront fee. The upfront fee are called “points” or “discount points”. 1 point is equivalent to 1% of the loan amount. In general, the lower the rate the steeper the amount of points. Paying points may make sense if you have long-term plans for the house and plan to own the home long enough to see the benefit of paying points.
You can also elect to receive a slightly higher interest rate; in exchange the lender can offer credits to offset your closing costs. By selecting a higher interest rate, it can be incredibly useful to a homebuyer who would like to save some money for some initial home improvements without significantly increasing their monthly payments. It is also a great tool to allow someone to refinance without paying closing costs if they know they won’t own the home long enough to see the benefit of paying points or selecting a zero-point loan.
I just want the best interest rate
Knowing the information stated above regarding different rate options, the “best” interest rate is entirely dependent upon your financial goals and your plans for your property. For some homeowners a higher interest rate that helps defer their closing costs can be much more beneficial, for others paying points over the course of their long-term investment will be more beneficial. It is my duty as a loan officer to talk to you about your financial goals and present options that help your individual circumstances. After all – the “best” interest rate is entirely customizable to you.