What's your best rate, tomorrow

I'm not a loan agent. But I must say, I don't remember hearing the term rebate pricing bandied about in public as often as it is today. The concept existed, but not the term. So the question is not, "What's your best rate ..." but "What's your best rate-dash-rebate ..."

On November 22, 2012, I found the following wholesale rate sheet online, for a 30 year fixed, conforming loan product. I'm not using it because the rates and rebates are the best available. They are not. I'm using it because it was available online.

Most lenders do not publish their wholesale rate sheets online. The most plausible reason I have been given for not publishing wholesale rate sheets is that they do not provide consumers with an APR [annual percentage rate] as required by Reg Z for the advertising of any mortgage rate. In any event, when financing a purchase or re-refinance I recommend that you ask your loan agent to show you both rates and rebates for the loan products in which you might be interested.

So ..... welcome to the world of rebate pricing. The rates quoted in parenthesis represent rebates back to you, that the lender is willing to provide in return for your agreement to pay a higher rate. You don't get cash. You get a credit against closing costs.

This is what those fast-talkers-of-America are referring to, on the radio, when touting their loan product which is so amazing, because you don't have to a pay a dime of closing costs.

Rate 15 day lock 30 day lock 60 day lock
4.750 (4.706) (4.581) (4.456)
4.625 (4.581) (4.456) (4.331)
4.500 (4.456) (4.331) (4.206)
4.375 (4.081) (3.956) (3.831)
4.250 (3.831) (3.706) (3.581)
4.125 (2.831) (2.706) (2.581)
4.000 (2.581) (2.456) (2.331)
3.875 (2.206) (2.081) (1.956)
3.750 (1.956) (1.831) (1.706)
3.625 (1.206) (1.081) (0.956)
3.500 (0.331) (0.206) (0.081)
3.375 0.544 0.669 0.794
3.250 1.169 1.294 1.419
3.125 1.919 2.044 2.169

For one loan product alone, this lender provides fourteen interest rates and three rate-lock periods. That's 42 options. And rates can change several times a day. Which do YOU think is the best rate, tomorrow?

Parenthetically, why would you consider a thirty year fixed, THE most expensive loan product - on day one? I'm not saying you should not consider it, I'm only asking why YOU think you should consider it.

Suppose you ask your loan agent whether she could get you one of those zero-point loans that are so heavily advertised. "Absolutely," she responds. "I can get you 3.625% ..... and I can lock it in for 30 days. No points!" Would you be well served?

If you track the 3.625% row you will note that a 30 day lock provides you with a rebate of 1.081%. On a $600,000 loan, that's nearly a $6,500 credit toward your closing costs. The closest you get to zero points is 3.500%. Were both options discussed with you?

Why stop at 3.500%? Why not 3.375%? Because at 3.375% and below, there is no rebate. The parentheses have disappeared. The rates quoted are what YOU will be charged. Why? Because you are "buying down the rate".

One, why do you want to know TODAY'S rate, when you aren't locking in any rate for weeks? Just to get you in the door a savvy loan agent could quote you an amazing but unavailable, below-market rate, knowing that you are weeks away from locking - at which time you will be told that it's a shame but interest rates have gone up.

Two, there's no such thing as "best rate". If one lender could ALWAYS deliver the least expensive loan on every loan product, all others might as well close their doors. The best you can expect is to work with a mortgage broker who can access those lenders who are most competitive in providing the type of loan that will suit your needs. I discuss niche lending in my essay, Return to Go.

Mortgage brokers sometimes compare themselves to travel agents. You pay no more than if you had gone directly to the airline/lender. And, they shop the airlines/lenders for you. At least through 2008 mortgage brokers originated a greater percentage of mortgages than retail lenders. But following the upheaval of 2008 and the disgrace of Countrywide, many lenders now refuse to work with mortgage brokers. So many excellent brokers have simply closed their doors.

If you prefer to work directly with a lender then you will have a lot of calls to make: national banks, local banks, credit unions.

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