MAKE IT YOUR xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />MISSION TO BE "IN THE KNOW"!
Do you understand the real way a home loan or mortgage interest rate is derived? Do you know what a PAR Rate home loan or mortgage is? Most don't, in fact, it can be virtually impossible to find out. The world of finance has been created in a "smoke and mirrors" fashion making it possible for those "In the Know" to take advantage of those who don't know.
Here we will provide the most "real world" no nonsense explanation ever presented to you about how the profit center of a home loan or mortgage works. For the first time ever, right here, you can get the same rates that the people who do loans, get for themselves, the PAR Rate!
Our mission is to educate and disclose the inner workings of the industry. Level the playing field for you, taking the mystery out of borrowing the money to buy your home. Would you agree that the largest and most personal purchase of your life should not be one of the largest opportunities to be taken advantage of? We feel the same.
Did you know your interest rate can fluctuate as much as 30% right at the desk of the person doing your home loan or mortgage? Based on one simple question, "How much money do I want to make on this loan?".No matter what program you qualify for, no matter what home loan or mortgage you receive, there is a huge fluctuation in what interest rate you are charged based on greed and greed alone. Keep reading and you will understand.
Would you like to know where the profit is?
There is profit in many many places in your loan. It is important for you to understand that pay now or pay later the typical home loan or mortgage costs the average consumer tens of thousands of indebtedness that is purely based on the greed of the person doing your loan, more importantly it is unnecessary.
Profit in the industry is referred to as the "front" and "back" of the loan. (We will discuss the back profit shortly when we discuss PAR Rate). The front profit is made up of things that you can see. You may not know what all the fees are, and how much if any of each fee is an actual cost and how much of the fee is hidden profit, but you can see them. Fees such as Loan Origination Fee (aka points), Broker Fee, Application Fee, Administration Fee, Document Fee, Lenders Inspection Fee, Mortgage Insurance Application Fee, Tax Related Service Fee, Flood Search Fee, Service Provider Fee, and Wire Transfer Fee even the Loan Discount Fee (aka points). There are even empty lines for the person doing your loan to make their own name up for a fee so the list can never really be complete.
Understand that on a Good Faith Estimate, any dollar amount associated to a fee or charge can be profit, either the entire amount or just a portion (aka packing the fee). For example, if on the Good Faith Estimate you see a Document Prep fee for the Title company it is probably a valid third party cost, meaning that the title company is going to get that fee through the proceeds of the loan and it is included on the Good Faith Estimate by the person doing your loan. This is done to fully estimate your costs associated with the loan, it is not profit. However, if that same fee is actually $200.00 and on the Good Faith Estimate the person doing your loan puts $500.00, there is $300.00 profit even though it is a third party cost. At the signing of the final documents you would be able to catch this by comparing the Good Faith Estimate to the HUD-1. The overall numbers would still be relatively the same but you would notice the $300.00 shift to a different line item. The person doing your loan received the $300.00.
Loan Origination Fee, this is pure profit expressed as points. A point is a percent of the loan amount and has no governing force except greed. The person doing your loan simply answers, "How much do I want to make on this loan?", and adjusts the Loan Origination accordingly. Now if you get a loan with zero origination I promise you the profit went somewhere, we will explore the possibilities as to where as we move on. On a $200,000 loan a typical Loan Origination would be 1 point or $2000 profit. If that $2000 is taken and split among 4 other third party costs (like in the example above), you as a consumer feel like you have negotiated a wonderful deal or received a bargain. In truth you have just been taken advantage of, the profit is still there.
Loan Discount Fee, also expressed as points.This is a tricky fee for the simple fact that it is not often used as it is intended, to allow you to pay cash for a lower rate. How do you know what the rates are? How do you know what you qualify for? How does your rate compared to the PAR Rate? Do you know what the rate was before you paid cash to lower it? Are you actually buying down your rate or are you simply lining the pockets of the person doing your loan with more profit?
Here is a scenario that happens all too often.
As a consumer you have no idea what rate you qualify for so the person doing your loan tells you that your rate is going to be 6% but to get that rate you must pay 2 Loan Discount Points. You feel ok with the rate but have a hard time accepting the 2% cash cost for that rate. The person doing your loan then eliminates the Loan Origination Fee to compensate for your having to pay the Discount. Here is the catch, the Loan Origination was 1% and the Discount Fee is 2%. Unknown to you, you actually qualified for the 6% rate (or lower, we will get to that when we discuss PAR Rate) without the need for Discount points SO the person doing your loan actually will get the 2% as profit instead of 1%. Once again you feel like you have negotiated a wonderful deal or received a bargain. In truth you have just been taken advantage of, the profit is still there, actually its double.
Broker Fee, unless you are dealing with a direct lender this particular fee is almost always a valid third party cost. Once again the amount is very workable for a profit. Now the person doing your loan works for a Broker much in the same way a Real Estate Agent works for a Real Estate Broker. So the Mortgage Broker Fee is always profit to either the broker and/or the loan officer. For example if the broker charges a $600 Broker Fee to the person doing your loan on every loan done, the person doing your loan simply charges a higher Broker Fee and keeps the difference as profit.
Processing Fee, another form of profit sharing like the Broker Fee. After the person doing your loan takes your information, analyzes your qualifications and decides which loan program is best suited for you and answers, "How much money do I want to make on this loan?" the processing of your file begins. More often than not the file is passed on to a processor, sometimes a company employee, sometimes they will vendor the processing to an outside service. Either case it is typical for the processor to receive a per file compensation, depending on the level of independence the broker affords to the loan officer, this per file charge could, and often is, split 3 ways. The broker for example may insist on $500, of that, $250 may go to the processor and $250 will go to the broker and of course if the person doing your loan charges $750 then the additional $250 goes to the person doing your loan as profit. In some instances processors are salaried or paid hourly but there is still a charge on the Good Faith Estimate and that is the brokers profit to keep. Wether your dealing with a broker or direct lender this practice is much the same.
Appraisal Fee, the appraisal is an absolute third party cost in fact the appraisal and the credit report fee are the only two that you do not see a lender packing. Actually the appraisal Fee is almost always C.O.D. because appraisers want to get paid immediately.
Underwriting Fee, a valid third party cost. This fee can vary greatly based on the type of loan you are going to receive. All loans have certain things in common. They must be originated (aka solicited), they must be processed and they must be underwritten. As a last step, the underwriter takes a processed loan and verifies the eligibility and with the stamp of approval from the underwriter the lender will fund the loan. Like any other fee this one can be manipulated to retain profits.
I will not continue listing fees one by one. The ones listed are the most common non recurring (one time fee associated with the loan) fees. They also are fees that the average consumer has NO IDEA as to the merit of or the amount. On a Good Faith Estimate and on a HUD-1 all the line items are numbered. Non recurring fees should be from line numbered 800 to 900; this section is referred to as "ITEMS PAYABLE IN CONNECTION WITH LOAN" and is where the profit is supposed to be such as all the fees we have listed. Anything numbered above 900 are recurring costs such as hazard insurance, taxes, title and escrow fees. These are the most absolute form of third party costs which have nothing to do with the person doing your loan or lender. Remember, on a Good Faith Estimate the raising of these fees to make you think the fees between line 800 and 900 are disappearing and then taking the overages at closing, for profit, is a very common way to get profit without you ever knowing.
Every Fee you see can be whatever the person doing your loan wants them to be as long as a few "actual" costs are preserved. When the final check is cut from the lender, any monies left over after the "real" costs are paid goes to the person who did your loan. As I said before, the world of finance has been created in a massive "smoke and mirrors" fashion making it possible for those "In the Know" to take advantage of those who don't know.
The illustration to the right is a small insert from a typical rate sheet. No matter what loan program you qualify for, this is the format of pricing that the person doing your loan gets to pick your rate from. Good credit, bad credit, down payment, no down payment, purchase, refinance, able to prove income, unable to prove income ETC...There is always a spread of rates. Let us say again, the question “How much money do I want to make on this loan?” is answered here as well.
Let me define some things on the chart. YSP stands for Yield Spread Premium; this is also called a rebate, expressed as points. The reason it is called a rebate is because if the person doing your loan gives you a rate with a YSP listed, the lender will rebate a percent of your total loan amount, in cash, to the person doing your loan. That is back end profit.
Here is another scenario, you qualify for this loan, the person doing your loan has the ability to give you ANY of the rates listed. If the person doing your loan charges you 6.375% he/she will receive a 2% rebate which is $4000. If you were given 5.625% the person doing your loan would receive $2000. This is in addition to all of the front end profit.
Cost means what you the consumer would have to pay, in cash, to receive that rate. This is where a Loan Discount Fee would be used as intended. Given the same scenario as above, if you wanted an interest rate of 4.625% there would be a Loan Discount Fee of 1% or $2000. Now you may see that without absolute full disclosure you have no idea whether or not you need to pay a Loan Discount Fee. Let us revisit the profit strategy involving misused Loan Discount Fees. You are told that you qualify for a 5.625% interest rate but it will cost you a 1.5% Loan Discount Fee, you agree. Lets also assume there is an industry standard 1% Origination Fee. As you can see on the chart a 5.625% interest rate also gives a 1% rebate to the loan officer. The total profit on your $200,000 loan just in those 3 areas is now at 3.5% or $7000. Wow.Remember every rate on that chart is yours for the taking in every instance. Unfortunately you are not in the know and the person doing your loan is answering, "How much money do I want to make on this loan?" Not a winning combination for YOU.
PAR. Notice in the chart 5.125% has a 0.00 next to it. That is called the PAR Rate. No “cost” to the consumer and no rebate to the person doing your loan. Don’t you think that if you qualify for any rate on that chart that PAR is the one you should get? We do too, it's the rate we give ourselves and it's the rate we give YOU. Notice the difference between the 6.375% interest (2% rebate) and the 5.125% (PAR)? In this particular case your interest rate fluctuates 19.6% based solely on the person doing your loan answering “How much do I want to make on this loan?”. The profit techniques described here are used every day everywhere to maximize profits on the unsuspecting consumer to the tune of tens of thousands of dollars. We do not employ or endorse these practices.
Let us explore the difference in monthly payment. Not including taxes and insurance for this scenario, 5.125% the PAR rate payment in our example of a $200,000 loan would be $1,088.97. At a 2% rebate to the person doing your loan, the payment at 6.375% would be $1,247.74 a difference of $158.77 per month for 30 years which equals $57,157.20. Some will say "Well no one keeps their loan for 30 years." As if that is justification for them to make $4000 off you, and have you commit to $57,157.20 of long term indebtedness.
If you need to wrap the front end costs into the loan due to your current financial circumstances, that is ok, but it should be at YOUR choice and you should see the information I have shown you here. Otherwise you are just another victim of those "In the Know" taking advantage of those who don't know.
The entire rate sheet is extremely complex. On any loan program there are basic rates and then there are adjustments, also called “hits”. Hits are additions or subtractions to either the interest rate or the rebate based on slight exceptions between the basic rates and your qualifications or desires. For example, if the rates to the right are for a normal interest and principal loan (aka Fully Amortized) and you decide you want an interest only loan; there may be a “hit” of .25% to the YSP which means the person doing your loan would make .25% less rebate. Obviously the normal practice is to raise your interest rate a slight amount to recoup that “hit”. We do not.
There are thousands of different loan programs, thousands of different lenders, each loan program has hundreds of guidelines that dictate whether or not you qualify and there are a whole lot of fees associated with getting a loan, these facts will not change. They call them different names advertise them ingeniously to always make you think you are getting something for nothing which is why I we have taken the time to tell you the countless ways to shuffle money in your loan. We can assure you that if you have ever had a mortgage you paid an incredible amount too much, everyone does, it is the way the game is played.
The solution, PAR rate and a Flat Fee up front. Without the two in conjunction the person doing your loan is simply shifting the profit from front to back and vice versa because he/she knows "How much am I gong to make on this file?" and has limitless ways to get what is wanted without you ever knowing.
After all that has been said, submit any question by clicking the "Got a question" button below. You can apply online right now by clicking the "Loan Application" button at the top of the page.
You will receive the PAR rate. You will be charged a flat fee on the front which will include all line items between 800 and 900 on the Good Faith Estimate (Origination fee, Broker fee, Processing fee, Underwriting fee, Credit Report fee). Appraisals will always be ordered C.O.D. therefore they are not included.
Loan Amounts from $200,000 to $324,999=$3595
Loan Amounts from $325,000 to $449,999=$4595
Loan Amounts from $450,000 to $574,999=$5595
And of course, PAR Rate!
Loan amounts below $200,000 and above $575,000 are welcome but must be looked at individually.
We are always flexible on loan structure based on your needs. If you want to buy down your the PAR rate with points you can. If you want to pay above PAR to lower you closing costs you can. We educate you on your options and you pick which is best for you!
What if there is no PAR Rate in the spread?
Once in a while PAR is not reflected as an option on a pricing chart. The chart on the right shows this. Notice the 5.250 interest rate? Under the 15-DAY column shows Cost and Rebate. The rebate is in parenthesis. All rates a quoted at a 15-DAY lock unless discussed and agreed to different. The closest rate to PAR then, is actually a rebate of .429% of the loan amount or $858 based on a $200,000 loan. In a case like this based on the fee schedule above we discount the $3595 by the $858 leaving a front fee of $2737 and an interest rate of 5.25%. We do plan on revolutionizing the way home loans are done. Please feel free to either apply or ask a question, but whatever you do, do not do "nothing".
You are now "In the Know"! You can save tens of thousands of dollars on your future purchase or refinance home loans and we will help you. Have a question? Feel free to contact us today. Don't hesitate to share this website with your friends and family. Let's make sure everyone is "In the Know".