Lowest Mortgage Rates

Borrowers often search for the lowest mortgage rate, but the lowest mortgage rate isn't necessarily the best mortgage rate. The mortgage rates consumers are quoted are based on the wholesale rate of mortgage money. The wholesale rate is that rate an investor is willing to accept for making an investment in you and your house. The rate is made up of the income stream from the interest and amortizing principal over a period of time as well as the discount (money paid up front). The "over time" portion of the equation is roughly 7 years on a 30 year loan. The average mortgage lasts 7 years because people sell their houses, pay off the mortgage and move. People also refinance. The industry has come up with an average life expectancy of a loan based upon those two events. On top of the wholesale rate is the mark up by the loan originator who does the work in getting the loan put together.

In the quest for the lowest mortgage rate some borrowers choose to buy the rate down by paying discount points. This is rarely a good idea. The prime principal of the time value of money, "a dollar today is worth more than a dollar tomorrow", puts this practice into question. Do the math and see if paying down the interest rate makes financial sense. More information about this and other mortgage topics is on our Mortgage Services page.