The Rate Quote Game

Big Lenders and the Mortgage Rate Quote Game

When shopping for a mortgage, it’s easy to assume that the biggest lender, the biggest bank, or the company with the most advertising will offer the best deal.

That isn't necessarily true.

Large lenders spend enormous amounts of money on advertising, corporate offices, technology, management, call centers, and other operating expenses. Ultimately, those costs have to be covered by the revenue generated from the loans they close.

That’s one reason it pays to look beyond the lender’s name and focus on what really matters:

The total price of your loan — the interest rate PLUS the lender fees associated with that rate.

Where Do Mortgage Rates Come From?

Mortgage rates aren't simply invented by individual lenders.

The cost of mortgage money is heavily influenced by the mortgage-backed securities (MBS) market. Market conditions change throughout the day, which means the wholesale cost of mortgage funds can change as well.

Banks, direct lenders, and mortgage brokers then build their retail pricing on top of that underlying cost.

Think of it this way:

Wholesale cost of the mortgage + lender's profit margin = the price offered to the borrower.

Technology has dramatically changed the mortgage industry. Independent mortgage brokers can access wholesale mortgage pricing from multiple lenders without carrying the enormous overhead associated with a nationwide bank or giant retail mortgage company.

An efficiently operated mortgage brokerage may therefore be able to offer extremely competitive pricing while still providing personalized service.

Bigger Doesn't Automatically Mean Cheaper

Consumers sometimes assume a giant lender must have lower rates because it originates so many loans.

But size doesn't automatically equal lower pricing.

Large mortgage companies can have substantial expenses, including:

• National advertising campaigns
• Large corporate and management structures
• Call centers and sales teams
• Technology platforms
• Compliance and administrative departments
• Expensive customer-acquisition programs

Those expenses have to be paid somehow.

Mortgage lending is a business, and the revenue generated from each closed loan helps cover those expenses and produce a profit.

That's why you shouldn't assume the company you see advertised everywhere is automatically offering you the lowest-cost mortgage.

Beware of the "Super Low Rate" Advertisement

One of the biggest mistakes borrowers make is shopping for a mortgage based solely on an advertised interest rate.

A mortgage rate without its associated costs tells you very little.

For example, one lender might advertise a lower rate but require thousands of dollars in discount points or lender fees to obtain it. Another lender could offer a slightly higher rate with little or no lender cost.

Which loan is better?

That depends on the numbers and how long you expect to keep the loan.

That's why I tell borrowers:

Shop the loan price, not just the rate.

You need to know both:

1. What is the interest rate?
2. What does that rate cost?

Only then can you make a meaningful comparison.

The Online Rate Quote Game

Online mortgage advertising creates another problem.

The primary purpose of many online rate advertisements is to get you to click, call, or provide your contact information.

The attractive rate that gets your attention may come with conditions that aren't immediately obvious.

It might assume:

• An excellent credit score like 800+
• A large down payment like 40% or more
• A particular loan amount above $500k for example
• A specific property type- urban subdivision home, not rural or unique property type
• Owner occupancy
• Significant discount points and other lender fees
• Other favorable borrower characteristics

Your actual rate and cost may be very different.

A rate advertisement isn't the same thing as a personalized mortgage quote.

Even Three Mortgage Quotes Can Be Misleading

You've probably heard this advice:

"Get quotes from three lenders and choose the lowest one."

That's better than not shopping at all, but there's a problem.

Mortgage markets can move quickly.

If you receive one quote in the morning, another that afternoon, and a third the following day, you may be comparing pricing from three different market conditions.

For a meaningful comparison, lenders should ideally quote the same:

Loan program + loan amount + rate-lock period + borrower profile + interest rate + discount points/lender fees — at approximately the same time.

Otherwise, you may not be making an apples-to-apples comparison.

Don't Forget About the Loan Officer

Rate and fees are important, but they're not the only factors that matter.

The quality and experience of your loan officer can have an enormous impact on your transaction.

A mortgage isn't simply an interest rate.

Your loan officer needs to evaluate income, assets, credit, property characteristics, loan guidelines, debt-to-income ratios, underwriting requirements, and potential problems before they become serious problems.

This becomes especially important with purchases.

A mistake can jeopardize your financing, delay your closing, or potentially put the entire transaction at risk.

When you're choosing a lender, find out who will actually be handling your loan.

Will you have an experienced loan officer you can reach directly?

Or will you be passed between salespeople, processors, call-center representatives, and customer-service departments whenever you have a question?

Experience Matters When a Loan Gets Complicated

Many mortgage applications are straightforward — until suddenly they aren't.

• Maybe you're self-employed.
• Perhaps the appraisal comes in with an issue.
• Maybe your income includes overtime, bonuses, commissions, retirement income, rental income, or multiple jobs.
• There could be questions involving credit, large bank deposits, gift funds, property condition, acreage, manufactured housing, or underwriting guidelines.

That's when an experienced loan officer becomes especially valuable.

A knowledgeable mortgage professional should be able to identify potential problems early, explain your options clearly, and structure the loan correctly before it reaches the final stages of underwriting.

Compare the Entire Mortgage — Not the Advertising

When comparing lenders, don't be overly influenced by the size of the company, a clever commercial, or an advertised rate.

Instead, compare what you're actually receiving.

Look closely at the interest rate, lender fees, discount points, loan program, mortgage insurance when applicable, lock period, estimated closing costs, and the experience and accessibility of the person handling your loan.

Most importantly, make sure you're comparing equivalent loan options at approximately the same point in time.

Get a Second Opinion Before You Commit

Already have a quote from a bank, online lender, credit union, or large mortgage company?

Get a second opinion.

A mortgage is too large of a financial transaction to assume the first quote — or the biggest lender — is automatically the best deal.

I can review the numbers with you and help you understand exactly what you're being offered.

No confusing sales pitch. No pressure.

Just a straightforward comparison of the rate, lender fees, loan program, and total loan price.

The Bottom Line

• Don't choose a mortgage company because you recognize its name.
• Don't choose a mortgage because an advertisement shows an attractive rate.
• And don't compare rates without comparing the cost required to obtain those rates.

Shop the loan price, not just the rate.

The right combination is competitive loan pricing and an experienced mortgage professional who knows how to get your loan successfully from application to closing.

A second opinion could save you thousands of dollars — and potentially save you a lot of headaches along the way.