Hudson Valley Musing


Mortgages: Why is the rate advertised always different than the rate I get?

Nevin Williams provided one of the best explanation I have ran across regarding mortgage rates and why most people don't get the advertised rate.

If you are thinking of purchasing a home this is a must read.



Why is the rate I see advertised always different than the rate I get?


You really didn't think you were actually going to get that rate did you?

Best way to start this conversation is by telling you that companies want to advertise their absolute lowest rate.  The rate advertised is available however few people meet the minimum requirements to get that low rate.  12 day lock period, 60%LTV 760 FICO score etc.


You should also know that no two borrowers are alike.   If your neighbor got a higher rate than you it doesn't necessarily mean he got a bad deal.  Several factors are considered when determining what you get as a final interest rate.  We call these factors: Risk based adjustments.  These adjustments are made based on the amount of risk that is being taken by the lender.



The most common risk based adjustments are:


  • Loan to value  
  • Debt to Income Ratio  
  • Credit Score  
  • State the property is located
  • Loan amount 
  • Combined Loan to Value 
  • Escrow waiver  
  • Lock period 
  • Cash out   


All of these will either raise or lower the cost of your loan. 

*Your neighbor may have had a high debt to income ratio whereas yours was low so that could have raised his interest rate even though you both may have the same credit rating.



Here is an example of what adjustments look like on a mortgage rate sheet


Agency AdjustmentsThe word Agency means Fannie Mae and Freddie Mac.  These are the companies aka "GSE's" that buy the loan from your bank.  They impose many of the adjustments you see and end up paying for.

The numbers to the right are what we call "pricing" adjustments, meaning the rate can remain the same but it will cost the customer more or less money to get it.

The numbers you see are in percentages.  Example: .125 means a cost of .125% of the loan amount. A minus sign in front of the number means a credit, so  -.125 means a credit back to the borrower of .125%.


$200,000 loan amount .125% would be $250 cost to the borrower and  -.125 would be a credit of $250 to the borrower to get the quoted interest rate.


If you have a lot of these adjustments it will push the cost of the rate you are targeting higher or lower.

Lastly, you need to know that rates do not remain the same.  They can and often do change throughout the day.  It is not uncommon to have rates change more than once during a workday.  This adds to the reasons why the rate advertised may not be what you get. 

Click on video below to understand how rates change.  Click here to contact me with any questions.






How to Shop Mortgage Rates

View this in 1080 HD  by clicking next to "CC" at bottom






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  Jennifer Fivelsdal  |   Real Estate Broker  |  

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Comment balloon 8 commentsJennifer Fivelsdal • January 16 2012 08:36AM


Hello Jennifer;  Thanks for this information, I miss the post, good of you to re-blog.

While not a mortgage person, buyers like to know their agent knows a little about the process.

Thanks to Nevin for the post.  We all need a little reminder now and then.

Posted by Kenneth Cole, NYS Licensed Real Estate Salesperson (Weichert Realtors Appleseed Group, 2043 Richmond Ave. S.I.N.Y. 10314. office phone 718-698-9797, -) over 8 years ago

Kenneth this was good information for both agents and consumers.  Nevin made it easy to comprehend.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) over 8 years ago

I would think that with mortgage lenders using the advertising you describe, they would really be ticking off an awful lot of folks who respond to their ads.  I would think that they have done market studies, and somehow feel that this approach works best for them... but there just has to be a better way.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 8 years ago

Great information here Jennifer .Thanks for the explanation!

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) over 8 years ago

Thanks for reBlogging this Jennifer...I missed it and found the post of interest!


Hi Jennifer, It mades you smile unless you sat at your kitchen table figuring out all your bills to see if you can afford that new dream home only to find the interest rate you were counting on isn't available for you!  Great Information Jennifer, thanks for sharing.

Posted by Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375, Real Estate Services You can Trust! (Flexit Realty "Flexible Home Selling Solutions") over 8 years ago

Jennifer, This is good information for consumers and agents to share with their clients.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 8 years ago

Excellent re-post, this post answers some very important questions a lot of consumers have

Posted by Brian Doubleday, Ladera Ranch, Foothill Ranch, Lake Forest, Mission Viejo (Brian Doubleday - IML RealEstate - Orange County, CA Broker) over 8 years ago

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