A Complete Guide To Par Rates

A par rate is the special mortgage interest rate that any given financial lender will charge you as the borrower for access to a specific loan product.

It’s a crucial piece of information to have for most borrowers, as it essentially describes the lending interest rate for a loan that you can obtain without any lender credit or discount points applied. (In other words, it’s how much interest on your home mortgage you can expect to pay.)

A par rate will influence your monthly mortgage payment, how much you can expect to lay out in annual housing expenses, the total loan amount you pay for borrowing and more. Read on to find out more about how it works in practice.

A par rate is the cost of your interest rate before expenses such as a Yield Spread Premium (YSP) and any origination fees are included. Put simply, it is the rate on a mortgage loan that you can expect to receive based on the type of loan you’ll be signing up for and your credit history – unadjusted by any factors that would pay down (i.e., lower) your interest rate.

To obtain your par rate, you don’t have to secure any credit from the lender or pay any discount points (i.e., one-time fees paid to the lender to lower your interest rate and monthly payment) as a borrower.

Before applying for a home mortgage, it’s important to establish a good credit score and history. These factors will influence the type of mortgage you’ll be able to apply for, and the par rate that you’ll be eligible to receive.

Before allowing you to borrow any sums, mortgage underwriters (i.e., financial pros who evaluate your finances and assess how much risk you may be to a lender) must first provide approval. In effect, a mortgage underwriter will be the final judge of whether you’ll receive a home loan. They’ll work with you to gather the necessary paperwork and insights to make this determination.

Several common factors that underwriters take into account when weighing prospective applications include, but are not limited to:

• Income
• Credit score
• Credit history
• Debt-to-income ratio (DTI)
• Employment

The higher your credit score (and the harder you work at improving your credit score) before applying for a loan, the more favorable your par rate will generally be.

Note that as part of any mortgage loan agreement, you must agree to a par rate.

It’s essential to be aware that as a general rule, FHA, VA and conventional loans come with more favorable par rates than loans made on second homes and investment properties. Loans for single-family homes may also come with a lower par rate attached than those keyed to apartments, condominiums and other multifamily residences. Shorter-term loans also typically come with lower interest rates attached than longer-term loan products.

Mortgage lenders use par rates as a measure of any given borrower’s risk. They also utilize them in the servicing of the loan and the determination of monthly mortgage payments. Par rates can also be used as a tool to buy and sell mortgages in the secondary market or to other banks, as mortgage providers often sell or hand off the servicing of loan agreements to other providers.

The par rate that a mortgage underwriter provides you can also be adjusted to a lower rate through premiums and discounts. To find out more about possible options for adjusting and lowering your par rate, speak with your loan officer.

Note that a par rate that’s been adjusted is referred to as the “adjusted par rate,” and final details can be found outlined in your home’s closing statements.

Discount Points

As we’ve mentioned above, discount points (or mortgage points) are one-time fees that you can pay to your lender to lower your mortgage par rate.

By way of example, on a $150,000 home loan, you could save $21.85 per month (or $7,866 over the course of a 30-year loan) by paying 1.25 points ($1,875 in additional closing costs) on your loan.

Alternately, paying 2 points on the same loan would result in additional costs at closing of $3,000 – but produce a $66.41 decrease in your monthly mortgage – adding up to a whopping $23,907.60 savings over the lifetime of a 30-year loan.

Lender Credits

Financial lenders may also agree to pay part of your closing costs – fees paid at the time of closing upon purchasing your property – in exchange for lender credits. This allows you to close on a property and complete a real estate sale without having to pay as much in closing costs at the time the property is sold.

However, in the event that you’ve opted to accept lender credits, you’ll be required to accept and receive a slightly higher interest rate.

Only mortgage underwriters can accurately set par rates. Nonetheless, borrowers can attempt to determine their mortgage rate using their lender’s standard market rates by loan type. As you go about researching your potential par interest rate, be sure to look into multiple loan types and lenders to determine which makes the most sense for you.

Borrowers can also calculate how a change in interest rate will affect their monthly mortgage payment using our mortgage calculator.

To summarize, a par rate is the interest rate on your mortgage that your chosen finance provider will charge you for servicing your loan without the application of discount points or lender credits.

Ready to continue on your home buying journey? Visit our Learning Center to read more about the difference between annual percentage rates (APR) and interest rates.