Every once in a while, a new client or referral will tell me that they saw rates that were lower than what I may be quoting. I appreciate having this conversation because I’m given an opportunity to tell them why. Not why the rates I’m quoting may be higher, but why online rate quotes tend to be lower. While looking online can give you a good general idea of where rates are at, it certainly should not be used as a true rate quote for your particular situation.
Firstly, general rates quoted on such online sites tend to be the absolute best scenario: more than 40% equity in the home, 780+ FICO, single family home, a 15 day lock period and conforming loan limit. These also tend to give you a certain interest rate, state it’s a no point loan and then quote the APR. When I see this, I am most often surprised at the difference between Note Rate (the true interest rate you’ll pay back the loan at) and APR. When there’s a large spread between the two, it usually means that there’s a point or two built into the rate. But if they’re telling you that it’s a no point loan, that means there are some pretty hefty fees – perhaps a $3000 processing or admin fee built in somewhere ... in which case, you’re better paying a point or percentage of a point to buy down the rate since points can be tax deductible.
Secondly, it’s good to know that the market determines where interest rates are at, not a particular bank. Yes, banks vary in the interest rates they can provide, but Bank A may have an excellent 30 Year Fixed one day and the next day an excellent 10/1 ARM instead and vice versa with Bank B. When you’re dealing with online rate quotes, always beware of “bait and switch” tactics or rates that seem too good to be true.
And since I’ve referred to closing costs and APR in this blog, I want to mention that one unique thing that I do is that I guarantee a maximum closing cost figure on refinances. If I tell my client that closing costs will be no more than $3000.00 or whatever the figure may be (dependent on the loan amount), then that’s it. If closing costs end up being more than the quoted amount, I honor that and pay the difference. When you’re dealing with an online bank or mortgage company, you must also take into consideration the accountability factor.
