Utah Mortgage Rates and Fees

Yesterday I was asked two questions which I think are worth a brief discussion:

Question: Why is the interest rate I am being quoted higher than the interest rate that I see on cnnmoney.com and other financial websites?

Answer: It is important to understand that most financial websites publish a national average interest rate. Lending institutions set interest rates on a regional or statewide basis. Because of the high level of foreclosures in Utah we tend to receive interest rates that are slightly higher than many states from other parts of the country.

Another reason that the interest rate you are quoted by a loan officer is typically slightly higher than that which you may find on various financial websites is because those sites will usually publish what we call the “par” rate. As I have previously discussed, Lenders pay a Brokerage for loans. This amount is tied somewhat to the interest rate you receive. The industry standard is to offer an interest rate with a back-end payment of around 1%. This amount is then used to offset the amount of closing costs that you are assessed. The “par” rate has no back-end payment to the Brokerage. While it may seem like better to have the lower rate, remember that by having the “par” rate you can expect to pay more in closing costs.

Question: Why do we pay closing costs?

Answer: The simple answer is that loans cost money. Closing costs are assessed on every loan. Even the so called “no-cost” mortgages still have closing costs; they are simply paid by the bank. A Loan Officer is typically paid betweem1% and 1.5% of the loan amount. The Brokerage has a fee, as does the Underwriter, the Appraiser, the Credit Reporting Agencies, the Title Insurance Agencies, etc. All of these entities and individuals render services which enable you to receive a loan.

I never really understand people that expect to be offered money for free. I have frequently reminded those who attend my home buying seminars that just as you would not expect your doctor or your attorney to provide a service free of charge it is unrealistic to expect your financial professionals to provide a free service. The reality is that it takes time and effort to secure your loan. I have also told people that if they would like to call each individual who works for their loan and ask them individually if they will waive their fees then I will not charge them, but how realistic is that?

Luckily for most home buyers, as the lending industry faces turmoil it is becoming more common for Loan Officers and Lenders to be more flexible with some fees in hopes of attracting more business. Personally, while I do offer incentives to members of my Inner Circle and those referred by previous clients, I am quick to remind potential clients that you are paying for a service, I can slash my fees, but then I will be forced to lower the quality of my service to free up time to find more “discount” clients.