Your Mortgage Rate Alone Tells You Nothing
The short version
- Comparing mortgage quotes by interest rate alone is like comparing cars by price alone. You also need to know the condition.
- The “condition” of a rate is what it costs: whether you’re paying points to get it, or receiving lender credits with it.
- In one real comparison, the same interest rate came with about $5,700 in points from one lender and about $2,500 in credits from another. That’s a difference of more than $8,000.
- Paying points makes sense in some situations, and taking credits makes sense in others. It depends on how long you expect to keep the loan and how much cash you want to bring to closing.
- Before you sign, look at the points, credits and fees on your Loan Estimate, not just the rate.
Where to go from here
- Send me your quote and I’ll review the points, credits and fees for you.
- Watch: Waiting for a Housing Crash?
- Start a pre-approval when you’re ready.
Read the transcript
0:00If someone offered you a Mercedes for $10,000, would you buy it?
0:05What would be the first things you’d want to know before you say yes? Would it make a difference if it was showroom new or sitting on blocks?
0:12A mortgage rate is a little bit like a car quote. The interest rate is like the price of the car, but the cost of the rate is the condition of the car. I’ll give you an example. A client came to me last week, and I asked him whether he was paying points or getting credits. He didn’t know the answer. He didn’t know the condition of the car. When I reviewed his quote and ran mine, it turned out he was paying $5,700 in points with the other lender, and he’d receive about $2,500 in credits from me.
0:44That’s over $8,000 in difference for the exact same interest rate. He was getting a banger from the other lender and a new car from me. And the real question is, was that even the right car for him? He was offered a sedan when maybe he needed an SUV.
0:58Sometimes it’s a really good time to pay points, and other times it makes more sense to earn credits.
1:03If you’re not sure whether you’re buying a lemon, send me your quote. I’ll take a look under the hood for you and let you know what I find.
1:10My name’s Patrick Gallagher. I’m the founder of Exhale Lending. Thank you for watching.
Already have a quote from another lender?
Send it over. I’ll take a look under the hood and tell you what I find.
Exhale & Learn videos are general education, not personal financial, tax or legal advice. Every situation is different, so talk with us about yours. Patrick Gallagher, NMLS #1495210 · Exhale Lending, NMLS #2493601 · Equal Housing Opportunity.
Exhale Lending is a mortgage brokerage firm that embodies trust, transparency, and a genuine desire to help clients achieve financial serenity. With our client-centric approach, expertise, and unwavering commitment to excellence, Exhale Lending is poised to make a meaningful impact on the journey towards homeownership for individuals and families alike.
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Exhale Lending, L.L.C.
Equal Housing Opportunity
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Cary, NC 27511