The studio with me today is jeff farnham, jts and company mortgage professionals.
And today we asked you, our viewers, to send jeff some questions and we wanted to know what determines my interest rate.
Welcome to the show, my friend.
Jeff farnham: good morning.
Troy: you ready to be in the hot seat?
Jeff farnham: well, i think so.
I think these are pretty good questions and i think you'll be able to get it.n a mortgage transaction, interest rates can be a determining factor for some.
How is an interest rate determined?
Jeff farnham: well, so a lot of factors go into a person's interest rate.
In days past, years ago, rates were pretty static.
It was across the board.
Now we look at credit score, the type of loan, the loan to value, the term you're going after.
And all of these things go into, coupled with what's going on in the bond market and the economy as a whole.
Jeff farnham: right.
So interest rates can be all over the board.
When you take two different borrowers and put them side by side, that can be because of their situation, their credit score could end up with a fluctuation in an interest rate.
The next one is can i shop for the best interest rates, and how do i do that?
Jeff farnham: yeah, absolutely.
Well, i mean, again, getting information, calling us.
The hard part about shopping for interest rates is if you call me today and i quoted you a rate and you call somebody else two days later, economic forces and factors in the market might have changed the market.
Jeff farnham: for example, yesterday we closed out very strong in the bond market, expecting a little bit of an increase in rates or a little bit of improvement in interest rates.
This morning we opened up with a very negative market.
So everything we gained yesterday, we lost today.
So that again, the rate could be completely different day to day.
This is interestingi was just reading my paperwork and they were talking about points.
Jeff farnham: so discount points are a cost that you pay to buy the rate down.
Jeff farnham: if you're quoting one rate and the borrower wants a lower rate, they can pay a discount point.
Usually it's 1% of the loan amount.
It could be a half percent or three quarters or something, but it's some function of that rate.
Jeff farnham: one of the things we see a lot with national lenders, right, and this is where it's almost like a hook.
They'll call if they're shopping rate, and a lot of companies are marketing to push this button.
Get online to and do this and get a quick rate.
Jeff farnham: well, what they're quoting, and a lot of times are quoting the very lowest rate and the borrower is not really understanding the cost, the discount points associated that.
They may be paying two or three discount points on a $200,000 loan.
Thats five or $6,000 and only lowering the rate a quarter of a point.
So they never make that call step through their monthly saving, potentially.
Here's a question from me.
If i'm already working with a lender and they're giving me rates and things like that, is it too late to come to you and swap out or maybe you advise on something better?
Jeff farnham: yeah.
We have that happen every day.
People are working with other lenders and they're 45, 60, 90 days into the process.
Our average is about 21 days, right?
Jeff farnham: so we have people call us all the time frustrated.
And with a lot of times we hear is, well, i'd nevr understood that anyhow.
Troy: going on.
Jeff farnham: yeah.
I didn't understand what my rate was.
I knew the rate but i didn't understand the cost associated with it.
And when i sit down and i'll show them that and we look at the math involved in it and we determine... if you've got somebody who's going to stay in the home only two, three, maybe four or five years, paying discount points almost is never going to make sense.
My last question, is the interest rate the most important thing to look at when buying my home?
Jeff farnham: not always, right.
Interest rate is an important factor.
And one of the things we work to is to get you the lowest interest rate for your specific situation, but also coupled with what are your goals and ambitions, right?
People always hang their hat on that interest rate.
Interest rate can be a tool in structuring a transaction.
Jeff farnham: so sometimes people don't have a lot of cash for down payment.
They can't afford to buy the lowest interest rate.
So we move the rate a quarter of a point saying eliminate some cost for them.
To help them in their transaction.
So rate is a tool,