Originally posted by @Charlie Fitzgerald:
Lenders set their rates based on their profitability metrics (internal fundamentals) and they publish those rates and their originators are given rate sheets that indicate the rates offered that day by that lender (in a volatile rate environment, these rates might change up to several times a day). The lowest rate (without a discount/points fee being charged is the "par" rate. Then their are rates above the par rate in .125 increments, each of which will come with a credit of fees paid back to the borrower, and there are also rates available below the par rate, which a borrower can pay discount fees/points to get. This is called a buydown.
In any discussion with a loan originator, the first question you want to ask after deciding on a loan product type (30 yr, 15 yr, 5/1 Arm etc.), is "what is the par rate for that product if I lock today?" The next question is, " what's my cost to buy that rate down?" Starting at the par rate puts them on notice that you are seeking the lowest rate you qualify for...not the lowest rate they can convince you to accept. Rate is completely negotiable and once you have the loan originator quote you the rate...that's when the negotiations begin.
Hope this helps.
PS...getting the rate negotiation done first, prior to discussing what fees you can have them cut, eliminates the opportunity for them to cut fees and then raise rates to generate excess profit to cover the fees they cut. Remember, low rate + fees is much better than higher rate + lower fees. The rate is also applied to the entire balance of the loan for the life of the loan...not just to the fee portion.
Now thats a solid answer with some meat to it! Thanks Charlie. I have a civil engineering degree, and it takes a certain kind of answer to satisfy my mind. Just what I was looking for!
Now to take it a step more, what is the lender actually making on this loan? I know thats subjective to a lot of variables, but if you feel generous and transparrent, hit me with some numbers. If thats too personal of a question, I understand, since I see that you are a lender, and I'll ask it in another thread dedicated specifically to it for others to pitch it.
Using my best quote so far: 30 year, fixed rate, NOO loan, 4.25% interest. 75%LTV. Home value appraised at $72K. Cash out refi 54K. 762 credit score. 1% origination fee. $14 flood cert fee, $400 doc fee. They are going to sell it on the secondary market and it fits fannie mae guidelines.
What does this transaction look like for those of us who never get to see the other side of signing on the dotted line?
Example of the kind of answer I'm looking for (going to be terribly wrong, but bear with me for the sake of understanding):
its s 75K loan, so they're going to sell it on the secodary market for 76K and make $1000, plus their $400 origination fee, so they made $1400. If you negotiate the interest rate down a quarter of a %, then it will only sell for $75.5K on the market, so they'll make $500 plus their origination fee, totaling $900. If you negotiate a quarter of a percent %, but they add a point up front, then the loan sells for $75.5K, so they made $500 from selling it plus the $400 origination fee plus the point thats worth $540 totaling $1,440.... in this example, what I'm asking when I ask for sveythig else to remain equal, but drop a quarter, I'm asking the bank to make $500 less on the deal.
If you answer this, you are the MAN! :)
