Mortgage par rate explained: how does it work?
A mortgage par rate, or lender par rate, is the standard interest rate a lender offers without charging any added fees (known as discount points) to lower the rate or providing lender credits. It’s seen as the baseline rate for a loan. The par rate is typically used to calculate the standard terms of a mortgage, and it can help borrowers compare different loan offers.
Occasionally, lenders and banking institutions may quote mortgage interest rates at or near the par rate. This represents a no-cost or minimum upfront estimate for the interest rate on a mortgage a buyer is considering.
A quick guide to understanding mortgage par rates
Here are a few frequently asked questions about mortgage par rates:
| Question | Answer |
|---|---|
| Do you need to pay mortgage discount points for a lender par rate? | No, par rates don’t require paying mortgage discount points, which are fees to lower interest rates. |
| Is the mortgage par rate the same for every borrower? | No, par rates vary based on your individual qualifications and loan details. |
| Do par rates change? | Yes, par rates can fluctuate daily based on market conditions. |
| What other factors affect the par rate? | Factors like your FICO Score and history, income, employment history, loan type and down payment can all influence a mortgage par rate. |
| Are par rates the same across lenders? | No, a par rate can depend on which lender you use. Every lender has their own pricing strategy. |
| How does the par rate affect my monthly payment? | A lower mortgage par rate will result in a lower monthly mortgage payment. |
| Is the mortgage par rate my only option? | Not necessarily. While a par rate is a good starting point, your loan officer can help you explore options to lower it using mortgage discount points or offering lender credits for a higher interest rate. |
Have questions about mortgage but don’t know who to ask?
That's what we're here for.
How to get a lower interest rate on a mortgage
Along with using mortgage discount points and lender credits to lower the par rate, adjusting one or more of these factors could help you get a lower interest rate on a mortgage:
- Credit score. How much does creditworthiness matter when qualifying for a mortgage? More than many people think. Raising your credit score from “average” to “good” may save you several hundred dollars a month on your mortgage. Of course, individual factors and loan terms will vary.
- Down payment. There are low and no down payment loans designed to make homeownership possible. But if you have the funds for a large down payment, it’s a good idea to make one. With a bigger down payment, you invest more in the purchase of your home. A lender will see this as favorable, likely offering you a lower mortgage rate as this lowers your LTV (loan-to-value ratio).
- DTI. Your debt-to-income ratio (DTI) is calculated by dividing your monthly debts by your gross monthly income. A lender uses your DTI to assess your ability to make monthly payments on the amount you intend to borrow. More debt means more risk when taking on a mortgage. Paying down debt, buying a lower-cost home and making a larger down payment can all help reduce your DTI.
- Loan type. Different types of mortgages—whether a Conventional, FHA, VA or USDA loan—may come with different requirements and rates. Likewise, the size of a loan can impact your rate. Large loans, like Jumbo loans, carry greater risk and usually require a higher interest rate.
- Loan term. Loans with shorter terms typically have lower interest rates than those with longer terms. This, again, comes back to perceived risk. A lender views a shorter mortgage term as less risky to pay back. Still, it’s important to keep in mind that while a shorter-term mortgage may come with a lower rate, it will have a higher monthly payment.
- Property type. How a home is used also makes a difference. If you’re purchasing a primary residence, you can expect to borrow at a competitive rate. In contrast, a loan for a second home or investment property may come with a higher interest rate and larger down payment requirement.
Your mortgage rate may even depend on where a property is located. Rates can vary by state, with Colorado, Missouri and Louisiana topping the list for recent rate increases. Some states have higher costs for operating a business; a lender may charge more to compensate. Regions with weaker economies may also have more mortgage defaults, causing lenders to raise their rates to offset risk.
We’ll help you decide what’s next
Will this be the year you buy your first house? Or will you sell and gain more space? Whatever you envision, we’re here to make your dreams possible. Contact your local Guild loan officer for guidance on the next steps to take.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.