What is a lender talking about when they refer to their rate sheets?
A lenders rate sheet contains a lot of information. First of all it will show all the different loan products that the lender offers. The rate sheet will also give different rates for all of the products, each product may have multiple rates starting with a "PAR" rate. A Par rate is the break even point for the lender and there is not any premium in the rate to pay any of the clients adjustments or closing costs. Then it will show maybe 7 or 8 higher rates that will pay a premium to allow for any adjustments or payment of closing costs.
The rate sheet includes all adjustments to the rate and pricing. An example would be anything that the lender feels is a " Risk"; like for instance a cash out refinance, 2nd home, investment property, FICO score below 720, DTI higher than 45%, Condominium, less than a 20% down payment and any other items that the lender determines are risky.
In other words the lender makes you pay for any type of loan other than a straight 30 year fixed, Single Family Residence, DTI less than 45% and LTV at or below 80% with a FICO above 720.
What the LO does is he looks at the rate sheet and factors in any lender adjustments then tells you what the rate is based on your financial profile and type of property you are buying.
Sometimes the adjustments are higher than the premium paid at the highest rate offered by the lender so the LO has to charge you points to cover the adjustments.
The LO also has to make a living so he will either charge you points or mayby a slightly higher rate and take the premium paid by the lender.
You can discuss this with your LO and decide which suits you better, taking a higher rate or paying points or a combination of the 2.
There is a slightly different answer if "lender rate sheets" is referencing a bank or a mortgage broker. So lets cover both.
Banks often sell loans directly to Fannie Mae and Freddie Mac or keep the loans in a private portfolio. Rates sheets are simply a format used to display the interest rates consumers will get after bank markups for their profit margin. These would often be called "retail rates".
Brokers on the other hand don't use their own money and "broker" the mortgage directly to an investor/lender/bank. Each investor/lender/bank issues a rate sheet to the broker that includes the profit margin for the investor/lender/bank. It's also going to show the spread " Yield Spread Premium" paid to the broker for selling a specific interest rate. Broker rate sheets are often called "wholesale rates".
Neither a bank or a broker will always have the lowest interest rate and fee's. The mortgage markets are always fluctuating and timing come be key. A broker will have access to several different investors/lenders/banks where a direct lender such as a bank will have limited distribution channel.
Simply put a rate sheet is a form that shows current mortgage interest rates. Of course it is much more complicated than that, but I will get into that in a minute. Each day, (sometimes multiple times in a day) mortgage interest rates change, either going up or down. Lenders release rates sheets to mirror these changes in interest rates, and to allow loan officers to know what rates at which a borrower may qualify. There are many differences inside a 'rate sheet' but the simply version is that it is a document that shows mortgage interest rates. It may be a piece of paper, an excel spreadsheet, a PDF file, etc. but ultimately it lists mortgage interest rates.
Now for the details: Rate sheets can vary based on your loan officer as well. A bank loan officer will typically have one 'rate sheet' (this may actually be a 10-15 page document because of the number of loan products available, each with different rates and adjustments). Whereas a mortgage banker, or a mortgage broker may have 5, 10 or even 20 rate sheets each day, one representing each of the lenders that they do business with. Each of those sheets would have that bank, lender, or investors loan programs, and rate adjustments. More on that later, as you can see though, you could be talking upwards of 50-100 pages of rates and programs on any given day. This is why there is no correct answer to "What is today's rate?". Because there are many rates available, and even rates inside each individual program vary depending on the specific circumstance of that loan.
Speaking of that, lets get into the actual mechanics of a rate sheet. They typically look like any other matrix, with rows and columns comprised of Interest Rate, Lock Period, and Price. Interest rates make up the left side of the matrix, lock period across the top, and price as the points to the right of interest rates. Similar to this:
Rates Lock Periods
15 30 45
5.00 2.00 2.25 2.50
5.50 1.00 1.25 2.50
6.00 0.00 .25 .50
The above example is very simplified, mortgage rates are expressed in eighth percent increments, not halves, but for simplicities sake I used simple numbers. As you can see above, if you wanted a 5.50% interest rate, and needed to lock the rate for 30 days (how long it would take to close the loan), you would have to pay a price of 1.25. That means you would pay 1.25% in discount points to obtain that rate. Similarly, if you took a 6.00% rate, and locked for 15 days, you would pay no points. The above example is over simplified, but it allows you to understand the mechanics of a sheet. In addition to the pricing, there are adjustments. Adjustments are the changes to rates based on a specific situation. There are adjustments for, among other things, credit score, loan to value, whether or not you will escrow your loan, documentation type, property type, loan amount, etc. Each of these can either raise or lower a rate, depending on what it is, and must be factored in to each situation before you can accurately price a loan. Again multiply this by 5 or 10 lenders, and changing rates every day and you can see how why there is no shortcut to quoting a true interest rate.