Why Can’t I Get a Straight Answer on “What is the Interest Rate?”

[Rabih Chamseddine]

Welcome to Home Financing 101. I get calls from friends, family and referrals with all types of questions and “what if” scenarios when they are in the process of buying a property or are thinking of buying something “way” down the line.  A lot of these questions are the results of a conversation they had with a friend that bought a house, years ago, and is trying to give some advice and warning that might confuse everyone. I’ve taken these scenarios and created Home Financing 101.  I hope you enjoy and gain some insight into the mortgage process.  Knowledge is power and I hope to empower you to make the best decision for you whether you are looking to acquire real estate now or sometime “way” in the future.

Why Can’t I Get a Straight Answer on “What is the Interest Rate?”  Or what determines interest rates?

 

First, you must realize that buying an interest rate (getting a loan) is not like a buying a pack of gum.  A pack of gum’s price is not dependent upon who chews it.  Interest rates vary from individual to individual based upon a number of characteristics of the borrower.  Credit score, amount borrowed, loan to value, property type, amount of money in the bank, previous payment history, existing debt, loan program and loan term all influence what your rate will be when you borrow money.  As a result, each time someone asks me what are interest rates, I can’t give a realistic rate until I have answers to the above characteristics.

 

For instance, some people have great credit while others may have had one or two late payments.  Past experience has shown that the person who has had a late payment or two presents a higher risk and will thus get a higher interest rate (think risk-return from that finance class in school).

 

To make quoting a realistic interest rate even more challenging, the financial market changes every day and sometimes intraday.  Thus, a rate quote today with all of the above information will most likely change tomorrow.

 

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