Andy Rogow – First Southeast Mortgage Corp.

People who are shopping for a mortgage often see rates advertised that seem very attractive. However, when they get a rate quote it’s often higher than the advertised rate. Is this a scam? Bait and switch? Actually, it’s most often neither of those. It’s that the advertised rate is available only to select borrowers who meet all of the qualifications. The interest rate you receive from a broker or bank is calculated by including several factors:

1. Credit score. The best rates will be offered to those who have credit scores of 740 and above. A person with a 660 credit score will often be offered an interest rate 1.5% higher than a person with a 740 score. So, instead of 3.99% for the 740 score, the 660 score might receive a 5.5% rate.

2. The Loan-to-Value. The amount you contribute for a down payment effects the rate. The less you put down, the higher the interest rate.

3. Type of property. A single family home might receive a slightly lower interest rate than a condominium, for example.

4. Loan Amount – Loan amounts that are under $150,000 or above $453,100 (what’s often referred to as a Jumbo loan) will most likely increase the rate.

5. Type of loan program. – FHA loans typically can have much lower interest rates than conventional (Fannie Mae and Freddie Mac – the 30 year fixed rate loan most people are familiar with). However, FHA loans come with increased closing costs and monthly mortgage insurance payments which increase monthly payments that can offset any savings in the interest rate.

6. Price of the rate. – Most consumers are unaware that every interest rate has a price. Imagine a grocery store shelf lined with boxes of cereal; there are all sorts of brands, types and sizes. On the front of the shelf you’ll see the price for the box of cereal you want. Now, replace all those boxes of cereal with interest rates; there’s a shelf of 4% boxes, 4.125% boxes, 4.25% boxes etc. Underneath each is a price. The big difference is that the price might be negative!  That means it’s a credit to the consumer. That price also includes what is being paid to the banker or broker originating the loan. In the old days, banks used to call these prices “points” and you’d be charged a certain amount of “points” at closing. 
At First Southeast Mortgage we start by finding the rate that has no or little cost to the client. However, let’s say you need additional funds to close. We might choose a higher interest rate that gives you a credit at closing to help pay closing costs. It’s still possible to buy down the rate as well, though we find that’s rarely the best financial decision to make. 

When the client gives us all of this information we enter it into a pricing engine and a rate is quoted. It will show us exactly what factors are increasing or decreasing the rate. At First Southeast Mortgage we believe in transparency and will share this information with clients. They are not trade secrets. You should be given all pertinent information so that you can make an informed choice.