Lenders sale the uses of their money at an interest rate of return to them.  For the purchase of a home the following condition are used to determine at what interest rate they are willing to loan you money.

The interest rate that they will loan you money is called Par Rate.  As a wholesale lender,  the lender offers money to you through a broker.  The lender sends sales sheets to brokers every day which show different interest rates for the different scenarios based on  much of the above information.

In a broker's office there are usually two or three different types of employees.  The receptionist, the loan processors and the loan offers.  Loan offers can go by many different names, originators, mortgage consultants. etc.

When the broker's office receive the rate sheets, the rate sheets have a built in arm twister for the brokers and/or the loan offers, the real person that will actually be deciding what interest rate you will be offered.  

The following is a cut out off of a 8x14 rate sheet that is daily sent to a brokers office.  Each broker will receive a few to as many as 15 or 20 rate sheets each morning by email or fax.

On this first cut out, please notice that the rate 5.125 will pay me the broker and/or loan office 0.000 if I can have this loan ready to close in 15 days.

So 5.125 for the next 15 days is your par rate if I am doing this loan for you. It is called par because I will make no extra money for offering you this rate. Please  also notice, when I lock in this rate for you 5.125, and something goes wrong and I can not get the loan ready to close for 16 to 30 days, then I will have to pay the lender $250 for the delay.  Or I could offer you 5.000 and close the loan in 30 day and pay the lender and extra $875 to give you this rate.  This is called discounting or discount points. 

Now look at this same chart.  If I am a greedy old turkey,  and I decide that you really do not have a clue about the mortgage industry and because I can come across as such a good trusting guy and you feel like you can trust me with your very life,  then I can look down this chart sent to me by the lender, and say to myself.  5.500 looks to me like a much better interest rate for you than 5.125.

Why because it will pay me and extra $2125.  So I say to you,  I got your interest rates back from the lender and I then bring up something bad concerning your credit scores so you will start feeling like you just do not deserve the lower rates that you have heard advertised.  Plus I brought up the bad in your credit report because I know most people do not want to share their dirt laundry over and over again, which means you will probably not go any where else to shop for a better deal. So you say fine, lets just get this over with, and so under my breath I say chi ching and start the process of taking you to the cleaners.   I have just added about $25 a month to your new mortgage payment,  over what you qualified for,  and an addition $2125 to the amount of money that I will make on this  the loan.  This money is called money made on the back of the loan.  All the up front charges that you know about are referred to as money made on the front of the loan.

The following are some more cut out from rate charts.  Please note that in some case the charts do not offer me a par rate and the best anyone could do is offer you the first paying rate.

In this chart the amount that an interest rate pays me is shown in the brackets.   So 6.000 closed in 30 days would pay me $1802.

This payment to me is called yield spread premium  and must be shown on the HUD if I am a broker and am wholesaling this money for a lender.  If the lender offers you the money direct or a broker that has a bankers line of money,  is offering you the money, the yield spread premium does not have to shown on the HUD

In this chart the amount that an interest rate pays me is also shown in the brackets.   So 6.000 closed in 30 days would pay me $343.  On this chart 6.000 is the first paying rate for me to offer you.  I would not offer you 5.875 because it would cost me $157 if I could close in 30 days

 

The following is a chart that show how interest rate effects payments.

Monthly Payments Table for 30 Years For Interest Rates 5.500 to 6.500 Percent Prin 5.500 5.625 5.750 5.875 6.000 6.125 6.250 6.375 6.500 100000 567.79 575.66 583.57 591.54 599.55 607.61 615.72 623.87 632.07 110000 624.57 633.22 641.93 650.69 659.51 668.37 677.29 686.26 695.27 120000 681.35 690.79 700.29 709.85 719.46 729.13 738.86 748.64 758.48 130000 738.13 748.35 758.64 769.00 779.42 789.89 800.43 811.03 821.69 140000 794.90 805.92 817.00 828.15 839.37 850.65 862.00 873.42 884.90 150000 851.68 863.48 875.36 887.31 899.33 911.42 923.58 935.80 948.10 160000 908.46 921.05 933.72 946.46 959.28 972.18 985.15 998.19 1011.31 170000 965.24 978.62 992.07 1005.61 1019.24 1032.94 1046.72 1060.58 1074.52 180000 1022.02 1036.18 1050.43 1064.77 1079.19 1093.70 1108.29 1122.97 1137.72 190000 1078.80 1093.75 1108.79 1123.92 1139.15 1154.46 1169.86 1185.35 1200.93 200000 1135.58 1151.31 1167.15 1183.08 1199.10 1215.22 1231.43 1247.74 1264.14 210000 1192.36 1208.88 1225.50 1242.23 1259.06 1275.98 1293.01 1310.13 1327.34 220000 1249.14 1266.44 1283.86 1301.38 1319.01 1336.74 1354.58 1372.51 1390.55 230000 1305.91 1324.01 1342.22 1360.54 1378.97 1397.50 1416.15 1434.90 1453.76 240000 1362.69 1381.58 1400.57 1419.69 1438.92 1458.27 1477.72 1497.29 1516.96 250000 1419.47 1439.14 1458.93 1478.84 1498.88 1519.03 1539.29 1559.67 1580.17 260000 1476.25 1496.71 1517.29 1538.00 1558.83 1579.79 1600.86 1622.06 1643.38 270000 1533.03 1554.27 1575.65 1597.15 1618.79 1640.55 1662.44 1684.45 1706.58 280000 1589.81 1611.84 1634.00 1656.31 1678.74 1701.31 1724.01 1746.84 1769.79 290000 1646.59 1669.40 1692.36 1715.46 1738.70 1762.07 1785.58 1809.22 1833.00 300000 1703.37 1726.97 1750.72 1774.61 1798.65 1822.83 1847.15 1871.61 1896.20

$100000 Yearly Cost .25 increase 6.25  $615.72 6.00  $599.55 = $16.17 x 12   $194.04 x 5 years  =$970.20 .50 increase 6.50  $632.07 6.00   $599.55 =$32.52 x 12   $390.00 x 5 = $1951.20 $250000 Yearly Cost .25 increase 5.75     $1458.93 5.50     $1419.47 =$39.46 x 12 $473.52 x 5 = $2367.60 .50 increase 6.00  $1498.88 5.50     $1419.47 = 79.41 x 12 $952.92 x 5 = $4764.60