Why Do Some Borrowers Pay More For Their Mortgage Than Others?

Interest rate differences between borrowers can arise from 5 possible sources.

Timing: Rates are reset every day and often within the day. Rate quotes at different times are not comparable unless you k now for sure that the market did not change between those times. The rates quoted on this site stipulate the day and time the loan is priced.

Lender Fees: Rates vary with lender fees, which range widely. The rate difference between loans with the highest fees and those with negative fees (rebates) can be as large as 0.625%. Except when the fees are stipulated, the rates quoted on this site are those closest to zero fees.

Transaction Features That Affect Risk or Cost: Some loans are riskier to lenders or cost more, and are priced higher as a result. Example are loans with low credit scores, loans for investment rather than occupancy, and refinances in which the borrower takes cash out of the transaction. The page on The Factors That Affect Your Mortgage Price Today shows a loan with minimum-risk features that can be compared to your loan carrying your features.

Market Imperfections: Because of the complexity of mortgages and the knowledge imbalance between lenders and borrowers, some borrowers may pay more than others on an identical transaction. The difference between the lower rate and the higher rate shown in the boxes is our estimate of the potential for mispricing associated with market imperfections.

Low-Balling: Rate quotes do not commit a lender until they are locked, and the market may change before that happens. This encourages some lenders to “low-ball” -- meaning to quote a price they have no intention of delivering in order to be selected by the borrower. The lenders delivering prices to this site cannot low-ball because their prices can be monitored by borrowers and by the professor.

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