Blend of Two Variables
Answering the question, “what are prevailing mortgage rates?” seems simple enough.
After all, the answer should be “5%,” “5.25%,” or something similar, depending on one’s credit scores, and the mortgage product in question (fixed, 5 yr ARM, 10 yr. ARM, etc.).
In practice, it’s a little more difficult, because rates are really a function of two variables: the quoted mortgage rate, and the lender’s origination fee (also called “points” — essentially, their commission).
So, whereas a week ago rates may been quoted at 5.25% and .75% points, this week they might be 5.375% and 1% origination.
To make an apples-to-apples comparison, you need to get out a spreadsheet and tweak the mortgage rate by the imputed rate of return on the lender fee (or at least, I think that’s what the MBA-types would say).
