A mortgage par rate is the standard rate calculated by an underwriter and assigned to a borrower for a specific lending product. Lenders can adjust par rates with certain premiums or discounts. After a rate is adjusted, it is referred to as the adjusted par rate.
Breaking Down Mortgage Par Rate
Mortgage par rates are generated by underwriters based on a borrower’s credit application. Oftentimes, lenders will generate a schedule of standard market rates by-product as a marketing tool or reference point for a borrower researching a loan.
Once a loan is issued, lenders record and analyze the par rates on loans as part of their risk management procedures. Lenders may also use par rates for buying and selling mortgages to other banks or in the secondary market. The par rate is also a consideration for various other internal evaluations of a loan, including a loan’s servicing rights.
Par Rate Underwriting
Borrowers may have an estimate of what their loan rate might be for a specific product based on a reference point schedule generated by the lender. However, the par rate on a loan cannot be calculated until a borrower completes a loan application. Once a loan application has been submitted, the underwriter will analyze the borrower’s credit profile along with the reference point rates on the type of loan they are seeking. If approved, the underwriter will generate a par interest rate that the borrower must agree to pay in the loan agreement.
Par rates are based on various factors which differ by loan type. Most standard personal loans will consider a borrower’s debt-to-income and credit score in the par rate determination. Secured loans and specifically mortgage loans also consider a borrower’s housing expense ratio along with debt-to-income and credit score.
Par Rate Adjustments
Lenders provide borrowers with a par rate quote which may be adjusted due to premiums or discounts. Borrowers should always discuss any potential premiums or discounts that may be available with their loan officer. Discounts can be applied based on various factors. Premiums may also be applied to allow a borrower to forego some of the upfront costs associated with a loan. If a borrower works with an intermediary broker, then a premium may be required to compensate the broker. The final rate that a borrower agrees to pay after adjustments is called the adjusted par rate. All details of the par rate and par rate adjustments will be disclosed in the lending agreement and outlined in any closing settlement statements.