December 17, 2019

What’s Behind That “Great” Online Lender Rate?

shopping mortgage rates

You’re shopping mortgage rates. Everything is starting to look the same. You’ve already (accidentally) placed yourself on three email lists and are just about to give up when you see it. A fantastic rate from an online lender! You think to yourself, “Of course. The internet makes everything better.”

Shopping for Rates: The Catch

If your second thought was “That’s too good to be true…” then you would be correct. Many online lenders include discount points in their quoted rates. A discount point is upfront interest, due at closing. One point is typically equal to 1% of the total loan. Some online lenders charge anywhere from 1-3 points or more. But if you are not in the habit of clicking the tiny “disclaimers” button, it is easy to glance over this detail as you are shopping mortgage rates. 

Points Math

Take, for example, one of the largest online lenders in the country. Here are the points currently charged on their most popular loans:

30-Year Fixed 1.875
30-Year VA Loan 2.125
15-Year Fixed 2.00
5-Year ARM 3.25

Say you are looking to take out a $200,000/30-year fixed rate mortgage. Points would cost $3,750. This means, in addition to your down payment and closing costs, you would need an extra $3,750 at closing. If that thought is a little scary to you, you are not alone.

Is the Lower Rate Worth It?

Nearly all lenders offer points as a way of lowering rates. But as we discussed in a previous post, the tradeoff for paying a couple extra thousand upfront is rarely in the best interest of the borrower. That is why we, at UHL, never require our customers to purchase points. (And without sacrificing a great rate.)

When it comes to shopping mortgage rates, there are so many numbers to consider. Chatting with an online mortgage bot and filling out generic questionnaires is probably not the best way to get a full grasp. Spend 5 minutes with one of our mortgage experts to see how you can save $5,000 or more in interest and fees. 

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