To Quote or Not to Quote Interest Rates… That is the Question!

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“What are your rates today?” This seems like such a simple question. However, there is no simple answer to this seemingly simple question.

Interest rates vary greatly based on loan type, loan size, loan term, and lock-in time, region of the county, world markets, bond prices and many other volatile indexes. These factors have a major impact on the movement of interest rates, but this list does not include the most important factor, the specific borrower’s credit score, LTV, DTI, property type, source of down payment, etc!

The major determining factor of interest rates are the specifics of the borrower who is asking to borrow the money!

Mortgage Lenders quote interest rates as a way to attract customers. There are two trains of thought on this questionable advertising method. And the decision depends on what the ultimate goal is.

1. If the goal is to simply get the phone to ring, then you quote the lowest rate available! This train of thought is what I call “bait and switch” advertising. The lowest interest rates are ONLY available to a small percentage of borrowers. Typically, the borrowers who are eligible for the lowest interest rate in the market on any given day are putting a minimum of 20% down; have credit scores above 720; have done a complete pre-approval so they can lock the rate for 15 days or less and they have no add-ons such as escrow waiver or property type price add-ons or credit score add-ons, etc.

This is the equivalent of a car dealer quoting a price for a stripped down basic car without air conditioning, power brakes or windows, no warranty and they only have 1 at that price and it has no tires!

2. If the goal is to provide a basic interest rate because people want to see daily interest rates, then you quote the most general, average interest rate for any given day. This is the approach I prefer to use when quoting a “generic sample interest rate”. Real estate agents want a daily rate quote and we understand that we need to provide one. I refuse to provide the lowest (bait and switch rate), so I opt for the middle or average interest rate. Unfortunately this tends to offend as many folks who think our rates are too high as it does folks who think our rates are lower than what they got!

Either way, to generally quote an interest rate without having any of the details about the borrower or the property is basically meaningless except for very general purposes.

If you really want an accurate rate quote, have the borrower call the mortgage lender with their specific details, so they get the rate that applies to them. This is the only way a borrower ever gets a true interest rate.

And remember, interest rates are at historic lows. This means that in the past 60 years no matter who the borrower is or what end of the interest rate scale they actually fall under based on their specific profile, they’re getting an interest rate that is lower than they could have gotten at any other time in history. Encourage your potential buyers to buy now and take advantage of historic interest rates.

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