{"id":3795,"date":"2024-09-16T14:42:26","date_gmt":"2024-09-16T19:42:26","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3795"},"modified":"2025-02-10T13:21:31","modified_gmt":"2025-02-10T18:21:31","slug":"whats-a-par-rate-and-does-it-really-matter","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/whats-a-par-rate-and-does-it-really-matter\/","title":{"rendered":"What\u2019s a par rate\u2014and does it really matter?"},"content":{"rendered":"\n

Mortgage lenders have different \u201cpoint-values\u201d associated with their interest rates, where there\u2019s different costs associated. If you pay the lender more upfront for a lower interest rate, that\u2019s called \u201cbuying points\u201d or \u201cbuying down your interest rate.\u201d It\u2019s essentially a way to get a lower interest rate for the life of the loan, which can be really valuable if the overall interest rates are low and you expect to hang on to the house for a long time (at least 5 or 8 years).\u00a0<\/p>\n\n\n\n

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On the other side, if the lender pays you money at closing\u2014or gives you credits toward closing costs for a higher interest rate\u2014this is referred to as \u201clender credits<\/a>.\u201d\u00a0<\/p>\n\n\n\n

Most lenders try to hide the difference between points and credits (or hide the price you have to pay, or that you might receive, when you get points or credits), but we try to be as upfront as possible. You can see the two with + pts (points) or – cr (credit) on our rates page.\u00a0<\/p>\n\n\n\n

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Check out today’s rates<\/a><\/div>\n<\/div>\n\n\n\n

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So, what\u2019s the interest rate without points or credits? That\u2019s referred to as the \u201cpar rate.\u201d\u00a0<\/p>\n\n\n\n

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Par Rate isn\u2019t real!<\/h3>\n\n\n\n

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Now – here\u2019s the big weird thing that lenders rarely (maybe never) talk about: the \u201cpar rate” doesn\u2019t technically exist. At least not in the way it\u2019s talked about as a \u201cbase rate\u201d everywhere.<\/p>\n\n\n\n

Without getting into the detailed rationale around capital markets and Frannie and Freddie and all that (if reading Fed reports is your jam, let\u2019s hang out). Just know that any loan will have thousands of different variables that factor into its interest rate and most will have associated +\/- points or credits. Getting to an exact \u201c0-point\u201d placement on a rate is actually pretty rare. <\/p>\n\n\n\n

So, why do so many lenders seem to offer a 0-point \u201cpar rate\u201d on their websites? Well, that\u2019s because lenders typically show the lowest \u201ccredit\u201d rate as 0 points and pocket the cash they should be giving back to you. I\u2019m sure it\u2019s just easier than trying to explain the details, but it\u2019s still kinda shady, right?<\/p>\n\n\n\n

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If a par rate is really a myth, does it matter?<\/h3>\n\n\n\n

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Sorta. Let\u2019s get into the nitty gritty on mortgage pricing:<\/p>\n\n\n\n

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  1. First off, the points and credits are all different at different lenders, so getting to the \u201cbest single rate\u201d can be really tricky (if not impossible).\u00a0<\/li>\n\n\n\n
  2. Second, most lenders are inconsistent in who gets better or worse rates\u2014they might be really catering to jump loans over $1M, for example. This is how they\u2019re able to maintain a little niche of business with roughly 4,000 different competitors.<\/li>\n<\/ol>\n\n\n\n

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    Basically, there\u2019s no single lender that\u2019s always the \u201cbest price\u201d in every situation.\u00a0<\/p>\n\n\n\n

    So, you can look at the APR as a decent apples-to-apples comparison of pricing (since it accounts for the points and fees, usually), but even that it\u2019s perfect. <\/p>\n\n\n\n

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    What lender has the best prices?<\/h3>\n\n\n\n

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    It\u2019s our mission to be the lowest-cost lender in the U.S. So we looked at tens of thousands of real loans from thousands of lenders to figure out whether our prices were consistently better (these are all anonymous, by the way – we only needed to know the loan details). Since points and fees are all over the place, we wanted to do an honest comparison. We said: if the exact same person with the same financial scenario went to us at the same time, and we gave that same person the exact same rate, what would we need to give a credit or add a point fee. <\/p>\n\n\n\n

    Here\u2019s what we found: <\/p>\n\n\n\n