Getting A Good Rate: Priceless. Rate Shopping Online: Useless!

June 14th, 2011

Everyone wants to get the best deal reasonably possible when getting a mortgage. I say reasonable, because although some lending sources advertise what seem like unreal rates, most consumers are smart enough to discount what appears to be a free lunch. The reality is that even with hundreds of competitors, rates never vary by much more than 1/8% in rate. But hey, who does not want every 1/8% to be in their favor?! I do. So go for it. But here is the problem with shopping for that best 1/8% deal online:

there are dozens of variables that go into quoting a rate.

Some of the numerous variables that go into quoting rates are:

-down payment
-amount of points charged
-geographic location
-housing type
-credit score
-lock-in days needed
-loan size
-purchase versus refinance

Lenders will put their lowest rate quotes online, which are always based on the highest credit score, the largest down payment, the shortest lock-in period, etc. And often times lenders will not clearly state exactly what the loan is for. They may quote the below:

“30 Year Fixed Rate, 4%!”

But they do not tell you it is only for loans below $417,000, that there are 2 discount points required, and only for purchase loans, which can close in 15 days or less, with credit scores above 780. Those limitations cut out a huge swath of consumers that may be looking at the online ad.

Is the ad designed simply to make the phone ring? Yes. Do people that see the ad all believe they can get 4%? Yes. And if they are talking to their local lender who is telling them they can get a rate at 4.75%, with 0 points, for a $650,000 loan, with a 45 day lock-in, for their 710 credit score; they do not understand why they cannot get 4%, since they saw it online! Of course the online ad did not mention it is not suited for loans over $417,000, that it won’t allow for a 45 day lock-in, etc.

Some online ads may have even more detail, and may say:

“30 Year Fixed Rate, 4%, 2 points, 30 day lock-in, for loans up to $417,000”

That is a fair amount of detail, but it still lacks credit score requirements, property type requirements, and other details that may raise the rate. And the reality is that if lenders put every single variable that affected every single rate quote, they would have advertisements that ran pages and pages long to cover all of the details and variables of each rate quote scenario; and nobody would read those ads.

If I believed everything I read online, I’d have a full head of hair with no bald spot, I’d be rich from flipping homes with no money down, I’d have 4 Russian brides beating down my door, and apparently there are numerous Nigerians ready to wire me millions of dollars if I’d only send them a $5,000 fee to help them with some modest fees to make the transaction happen.

This is why you cannot rate shop online. There are too many variables, too many scammers, and too many people willing to post something online simply to get you to call, and then switch you into a loan product or rate quote that you really do qualify for. And why would you choose a lender simply based on who had the most effective ad that made you call them? Why wouldn’t a lender be chosen based on experience, ability to perform, efficiency, transparency as well as their interest-rate quote? It would be nice if a lender were referred or if you had some knowledge of their prior track record.

There are numerous examples of people who get upset or curious after seeing a low rate online. But after some analysis, we find that there was a situation or variable that did not allow them to get the “best rates”. These situations are commonplace. Examples of scenarios that may have to pay a slightly higher rate than others:

-a condo will pay a higher rate than a single family home.
-two unit (i.e. duplex) will pay a higher rate than a single family home.
-a 700 credit score is a higher rate than a 740 credit score.
-a cash out refinance is a higher rate than a purchase loan.
-an investor will pay a higher rate than an owner occupant.
-a 60 day settlement will pay a higher rate than a 30 day settlement.

I could go on for days, but I think you get the point.

While I am at it, I get an awful lot of calls from clients who quote rates that sound really low based on a news story, too good to be true almost. Are they? Of course! Once a month the media does a standard news story on the “national average interest rate”. The problem is, the average interest rate is too average! What do I mean? You can read more here. But just know that when you hear a news story about the average interest rates, those rates will usually not apply to a specific scenario.

So the moral of this story is online rate shopping is OK if used as a very rough gauge, but don’t even expect to get exactly what you see online, since the rates posted online are not accurate for all scenarios, and are only designed to make the phone ring!

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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