What you should know: "Par" interest rate
When it's time to lock an interest rate, it's important to understand how rates and fees are related to each other -- and for that, we look to some terminology from the bond market.
The "par" rate is the interest rate at which a mortgage is offered to the buyer with no compensation to the company originating the loan. Because rates are determined by the bond market, the "par" rate will increase or decrease from day to day -- and often even during the course of one business day.
For example, if the bond market is reflecting a market rate of 6.625% for a mortgage, if the buyer asks to have his or her rate locked at 6.625%, he or she should expect to pay some sort of origination fee to the lender.
Origination fees are often 1% of the loan amount, which can be thousands of dollars up front (depending on the size of the loan.) Often, if a borrower wants to reduce up-front closing costs, he or she can ask for the interest rate to be locked at a slightly higher rate. In the (hypothetical!!) example above, a rate of 6.875% would most likely not have an origination fee associated with it. That's because it's being originated at a rate that's higher than the "par" rate, so an investor would be willing to pay "Yield Spread Premium" (or "YSP") to the company originating the loan.
On the other hand, some borrowers who know they're going to be in their new mortgage for a long time and want to buy their interest rate down can pay a discount fee and have their loan locked at a rate lower than par. A 1% discount fee in the (hypothetical!!) example above might bring the interest rate down to 6.375% or 6.250%. Please note that discount fees used this way are charged in addition to any origination fees.
Lastly, origination and discount fees are most likely deductible expenses, so the year after you buy your home, you should be able to get a nice deduction on them. Ask your CPA about your specific case to know for sure.
Quick interest rates
| Program | Rate | APR |
| 30 year fixed | 6.375% | 6.623% |
| Jumbo fixed 30 | 8.500% | 8.652% |
| 5 year ARM | 5.750% | 6.159% |
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