Everyone’s interest rates are (almost) the same

by Tom Tousignant

in Blog, Home Buying, Mortgages, Refinancing

The mortgage bond market sets the overall interest rate trends.  Every day, traders in New York and online trade Mortgage backed Securities.  When the bond prices increase, mortgage rates fall.  Bond prices normally are bid up when the economic outlook sours, or when there is uncertainty globally in money flows into safer investments like US Dollar backed bonds.

Every lender in the country adds the following markups to the mortgage bond prices to get their retail mortgage rates: 

  • Marketing costs
  • Production costs
  • Profit Margin

With this information, you can sense that some lenders will have higher rates than other lenders. For an example, consider a very highly advertised Auto Insurance company. How can you save 15% on your auto insurance if they are paying to have a Gecko on TV every 15 minutes?  (Answer:  You aren’t saving on insurance, you are paying for a lot of TV commercials, so you are likely overpaying for less insurance coverage).

Common indexes used for w:Adjustable Rate Mort...
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Marketing Costs vary widely from lender to lender.  The lender that advertises the most, will likely have higher rates than lenders that do not run expensive advertising campaigns.

Production costs are pretty much the same for every lender – there really is no way to save money here.  Every mortgage lender has to employ processors, underwriters, funders and closers.  Every lender has to verify the house is not in a floodzone, set up an escrow account, and verify employment and income, so there really aren’t any way to save save money on loan production.

Profit Marginis different with different companies.  A lot of lenders use their mortgage revenue to support other projects they have.  For too many lenders today, charging more money to recover form earlier sub-prime losses is a real need.  Lenders with legacy issues, such as Pay Option ARMs or Sub Prime mortgages are going to have to charge more money to their current borrowers in order to cover those losses.  Beyond that, pretty much every company in America is in business to make a profit. So can’t we just accept that, just as you don’t go to work for free, most mortgage companies should make a fair return on their labor?

So, if you call to ask, ‘What are your rates?”, recognize that you might get the same answer from everyone.  Because, everyone’s rates are (almost) the same.

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