Myth # 15: Par is the lowest rate my LO offers me
As a first time home buyer, you may have encountered the term par mortgage rate. While most people generally understand the concept of a basic mortgage rate, they may not be familiar with a par mortgage rate or the effect it can have on a buyer’s ability to purchase a home. Understanding a par mortgage rate is an imperative element when it comes to getting the best possible mortgage quote.
Essentially, this is an interest rate that may be a reference point where a lender will not offer a rebate or have discount points required. In addition, a par mortgage rate may be what a lender will pay another bank or lending institution the value for an already existing mortgage. This also includes the calculation of placing a value on mortgaging servicing rights. (Source: Business Dictionary)
Put simply for first time home buyers, the par rate is the interest rate that you will qualify for from a lending institution or bank if there is no manipulation of the standard interest rate. Yield spread premium (YSP) is what a lender makes when they sell at a higher rate. Discount points are paid by the borrower to get a below-par rate.
Your goal should be to eliminate discounts and get as much YSP as possible. For this, you will need a calculator that shows what a fair discount/YSP is for your risk profile. You can find this one-of-a-kind tool at Parlend. Once you determine your par rate, you will be in a much better position to negotiate.
How Par Rate Works for You
The simplest way to understand a par rate mortgage is to think of it as the base interest rate you will get. Of course, this is assuming that there is no manipulation of the rate due to outside factors. A par rate mortgage provides a baseline from which you can start formulating calculations in regard to your potential mortgage rates. Using this as a starting point can help you to get seek out the best possible mortgage rate quote.
One factor that can profoundly impact a buyer’s par mortgage rate is a buyer’s credit score. A person with a bad credit score is likely to have a higher par rate, while someone with good credit may enjoy lower par rates. However, it is important to remember that the rate may be further manipulated, which may offer better rate opportunities for both the borrower and the lender. For example, a buyer with a good credit score will be considered low-risk by the lender. This might encourage the lender to adjust the interest rate in such a way as to provide the buyer with more cash credit which would help to offset additional fees such as closing costs. Calculating your par rate in advance using a mortgage calculator such as Parlend’s Par Rate Calculator can help you to take advantage of opportunities like this.
If you are shopping for a mortgage for your future home, understanding the par mortgage rate is an essential piece of your overall mortgage rate calculation. Knowing your par rate will ultimately ensure that you make the right decision regarding whether or not the home you intend to purchase will fit within your budget. It will also help you to seek out ways to get the best deal possible on your home loan rate quote.