The Mortgage Interest Rate

This article will help you understand how the mortgage interest rate works. As part of being an informed borrower, you certainly don’t need to be a finance expert to understand rates but you should have a general idea of how rates are quoted and how the process works.

The Mortgage Brokers and the Banks

When going to get a home loan or second mortgage, there are essentially two types of mortgage interest rate quotes that you’re going to run into – the first are those mortgage rates that are actually provided by banks that finance homeowner loans with their own money. The second are rates that are given to you by mortgage brokers who are essentially middlemen and resell the loans from wholesale mortgage lenders.

Though this is the standard way of doing business, it is important to understand that these retail rates are being marked up so that any middlemen are able to make a profit. So how does one go about getting the mortgage interest rate that will not only be borrower friendly but also simple to obtain?

This may sound counter-intuitive but the first thing you want to do when looking for a mortgage is to completely ignore your bank. Banks very rarely will negotiate the mortgage interest rate because they don’t have to. In fact, they really don’t need to disclose the amount of markup they have in their rates because the banking industry gets to play by different rules when it comes to mortgages.

The Wholesale Mortgage Interest Rate

Now that you got your bank out of the way, you’re ready to grab wholesale mortgage rates. These rates are offered by the wholesale lenders who almost never deal with the public directly. This is where the banks get their rates and then mark them up in order to sell them to consumers. You will however need to contact the broker who has access to these rates. Only mortgage brokers will have access to the wholesale mortgage interest rates.

So you might be asking “how do you find one of these brokers?”. Mortgage brokers have learned a less than reputable image over the past decade (and rightfully so in some instances) but remember, that there are many honest brokers in the mortgage industry -you just have to find them.

It also helps understand how mortgage brokers are paid so that you can see where the markup is likely to occur on your mortgage interest rate.

How Mortgage Brokers Make Their Living

Mortgage brokers typically earn their income from two sources during a home mortgage transactions. Whenever you take out a mortgage you’ll see that there is an origination fee for the services that were provided by brokers. On top of that, there may be a loan processing fee. If you see a loan processing fee, call them on it immediately because this is a fee that you should not be paying. In fact, if you see this you may want to find another broker.

The other place that your mortgage broker is likely to make money is from the incentives that lenders give them to close mortgages at higher interest rates. This is why it is important to shop for the best rates because the differences in rates are almost always due to this premium.

How to Find the Best Mortgage Interest Rate

When setting out to get a good rate on your mortgage, contact the local mortgage brokers in the telephone book and tell them upfront that you have no problem paying a reasonable origination fee but that you’re looking for someone who will get you a mortgage without processing fee or lender compensation. Also, another tip is to use is that brokers who are self-employed and not working for large brokerage firms. They are more likely to negotiate and work with you to get the best rates. Large firms are sometimes not able or do not authorize their employees to negotiate the premiums.