Just like Real Estate prices, which can vary widely depending on the local area, mortgage rates will have a variance for a number of reasons.

Lenders rates will be based off of the risk calculated specifically to an area, in a larger sense, and then to that particular in a much smaller sense. Here are some examples:

An area that is growing an experiencing home price appreciation will have less risk for a lender. This is because, assuming home prices are going up, versus prices dropping, the lender will be in a better position lending in the increasing area. Because of this, they may offer more favorable rates or loan guidelines in that area versus an area with declining values. Portfolio lenders and jumbo lenders are much more susceptible to pricing variances in specific areas than conforming lenders.

Additionally, aside from home price movement, loan amount can play a large factor in interest rate. There is typically a 'sweet spot' for lenders that falls between approximately $150,000 to $417,000 for conforming loans, where you will receive better pricing. There may be loan size tiers inside of that range, with rates getting better the higher you go. This is because, from a profit perspective, a bank stands to make more money from a larger loan up to the conforming loan limit ($417,000). Loans that fall below these levels may have additional pricing adjustments made to them because, in short, a bank or lender will make less money on these loans, but they cost the same amount to originate. Think of it this way, a loan officer, a processor, an underwriter, and a closer must all be paid on each loan that is closed. In addition there are ancillary costs such as an appraisal, costs to deliver a loan to Fannie Mae, etc, that are fixed regardless of the loan amount. To compensate for these costs, a lender may have a higher rate on lower loan amounts. They may generalize this to geographic areas, as, in general loans in the Midwest are for lower dollar amounts than loans on the coasts. That is one common example of why rates will vary geographically.

When you get into Jumbo loans (greater than 417,000 in most areas), you will typically see higher variances in interest rates because, as a whole these lenders are retaining the loans in their portfolio. This means that Fannie Mae and Freddie Mac will not share in the risk on these loans, if the borrower does not pay the bank has to bear the full amount of the default. Because of this, jumbo lenders are much more specific about the geographic areas they lend in and may have very different rates or qualifying guidelines in different areas. They are simply trying to grade the risk of lending in one area as opposed to lending in others, and set their rates and guidelines accordingly.

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