Why Can't My Mortgage Lender Give Me it's Best Interest Rate?

Posted by  on Sep 16, 2009

Mortgage rate shoppers who check out the ShopRate.com daily blog and mortgage rate lock recommendation will probably notice one thing immediately. The "best rates" listed are often significantly different than the rates an applicant is offered when it comes down to locking a mortgage rate. There are many reasons for this.

Mortgage Interest Rates Are Risk-Adjusted

Those who took out a conforming Fannie Mae or Freddie Mac mortgage a few years ago may be in for a surprise when they apply for a refinance or a loan to purchase a new house. In the past, the file was with few exceptions either approved or declined. Period. Now, the mortgage may be approved but the riskier applicants will be penalized with surcharges added to the fees--thus effectively increasing the interest rate.

Take a look at Fannie Mae's Loan Level Pricing Adjustment Matrix and investigate the potential surcharges. A homeowner with a 660 credit score (formerly good enough for approval more often than not) looking for an 85% cash-out refinance would incur the following fees (in addition to the regular loan charges):

  • .25% adverse market delivery charge
  • 2.25% credit score charge
  • 2.50% cash out refinance charge

Those FIVE points added to the regular fees on a $250,000 mortgage cost the homeowner an extra $12,500! So before getting a quote from a lender, loan applicants need to ascertain that the lender has the information needed--the loan-to-value, the credit score(s), the type of property, and if cash-out will be involved.

Consider FHA When Shopping

Yes, there will be mortgage insurance premiums (MIP) regardless of your loan to value. But there are no Fannie Mae surcharges. So if the loan amount is within FHA limits in the property's area it could pay to check out the total loan costs and see if FHA is a better deal.


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