{"id":385,"date":"2020-04-06T10:41:49","date_gmt":"2020-04-06T10:41:49","guid":{"rendered":"http:\/\/192.168.0.108\/corex\/?p=385"},"modified":"2024-08-23T22:55:48","modified_gmt":"2024-08-23T22:55:48","slug":"a-primer-on-lender-credits-discount-point-and-the-rate-spectrum","status":"publish","type":"post","link":"https:\/\/testv78.demowebsitelinks.com\/Integrity-Capital\/2020\/04\/06\/a-primer-on-lender-credits-discount-point-and-the-rate-spectrum\/","title":{"rendered":"A Primer on Lender Credits, Discount Point and the Rate Spectrum"},"content":{"rendered":"<p><em>By:\u00a0 Brian Tilton<\/em><\/p>\n<p>August 1<sup>st<\/sup>, 2024<\/p>\n<p>A common misconception is that lenders offer a single interest rate at any specific point in time.\u00a0 On a daily basis, loan officers are asked, \u201cWhat is your interest rate?\u201d.\u00a0 In reality there is not a single rate per se, but rather a whole spectrum of rates from which the borrower can chose.\u00a0 Now of course interest rates differ by the loan program, the loan term, a borrower\u2019s credit score, the loan-to-value (LTV) ratio, and an assortment of other factors.\u00a0 But for any given scenario, holding all those factors constant, there is still a whole spectrum of rates to choose from, each associated with a cost or a credit to the borrower.<\/p>\n<p>To understand this properly, we must define a few terms:<\/p>\n<ul>\n<li><u>Lender Credit<\/u>: Funds that are credited from the lender to the borrower.\u00a0 This credit can be applied to costs associated with a loan and\/or home purchase.\u00a0 Some examples include title, escrow, prepaid property taxes, prepaid insurance, etc. \u00a0So why would a lender give a borrower this seemingly free money?\u00a0 Because the rate selected by the borrower is an above market rate.\u00a0 Holding all things constant, the higher the rate, the higher the lender credit.<\/li>\n<li><u>Discount Points<\/u>: Funds that a paid from the borrower to the lender at closing.\u00a0 Why would any rational borrower willing chose to pay discount points to the lender?\u00a0 Because they desire a below market interest rate.<\/li>\n<li><u>Par<\/u>: This is the rate whereby there is neither a lender credit nor discount points.\u00a0 This is essentially that lender\u2019s \u201cmarket rate\u201d<\/li>\n<\/ul>\n<p>So where on the rate spectrum is it most advantageous for the borrower to select?\u00a0\u00a0 The answer is \u00a0. . . . . .\u00a0 it depends.\u00a0 \u00a0While on the surface every borrower wants the lowest rate possible, depending on the circumstance, it may not make financial sense to pay discount points for the lower rate.\u00a0 For example, if a borrower is only expected to have the loan for a year or so, paying points for a lower rate is generally unwise.\u00a0 In this scenario, selecting a rate with enough lender credit to cover all costs may be a wise decision.\u00a0 \u00a0On the other hand, if the general level of rates is at historically low levels, and the borrower does not anticipate paying off a loan for at least the next 10-15 years, paying discount points for the lower rate may be financially prudent.<\/p>\n<p>Any worthy lender should discuss borrowers\u2019 long-term objectives and be able to model various rate scenarios to advise the borrower on the optimal rate for their specific scenario.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By:\u00a0 Brian Tilton August 1st, 2024 A common misconception is that lenders offer a single interest rate at any specific point in time.\u00a0 On a daily basis, loan officers are asked, \u201cWhat is your interest rate?\u201d.\u00a0 In reality there is not a single rate per se, but rather a whole spectrum of rates from which&#8230;<\/p>\n","protected":false},"author":1,"featured_media":14286,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[61],"tags":[],"class_list":["post-385","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-strategy"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - 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