“ Rates Dropped” – what does this really mean?

By
Real Estate Sales Representative with Century 21 Fox Properties

     Interest rates are offered with varying costs. If you call a lender today and get quoted 5.0% for a 1% origination point (1point = 1% of the loan amount) and hear tomorrow that rates have dropped, it doesn’t necessarily mean that the same 1% (or 1 point) gets you a lower rate. Example: Today the following rate/fee combinations are offered 4.75% for 2.0 points, 4.875% for 1.5 points and 5.0% for 1 point. So the next day you hear rates have dropped and think you are going to get lower than 5% for the same 1 point fee, but are told the following: 4.75% now costs 1.875 points, 4.875% now costs 1.25 points, and 5.0 costs .75 points. This causes confusion for people who are not in the industry because they think they are going to get a lower rate for the same amount of fees. The confusion lies in the fact that it’s not the rate that is dropping; it is the cost for any given rate that you choose.

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