Let’s clear a few things up on the “How to read a mortgage rate sheet” videos
I know its been a little while since our last post here…
IT’S BEEN CRAZY AROUND HERE WITH THE LAUNCH OF 3 NEW PRODUCTS IN MY OTHER COMPANY!
Anyhow… that’s no excuse… so as soon as these products are off the ground, I’ll be back to devoting a bunch of time into giving you the best and most “real” real estate, business, and life tips/information around.
I just wanted to write a quick note and let you know about a question that one of our readers had about the rate sheet videos.
The reader asked about clarification on the price adjustments on a rate sheet and whether they are shown as negatives… with parantheses… or whatever. Basically, my video was to crappy to read and she needed a bit of clarification.
That’s what this is all about. You have questions… we have answers.
Anyhow, this is the email I wrote back. I hope that it helps clarify things for you too if you have questions on the rate sheet tutorial.
Enjoy!
Hi April,
First off, I apologize about the fuzziness of the video. I had to reduce the quality down far enough to make it play faster.
Anyhow, really it varies from rate sheet to rate sheet. Each company has its own format.
On the rate sheet that I used, the adjustments do not have a paranthesis or – / +. You know that they are adjustments because the rate sheet will clearly say “price adjustments” or “rate adjustments” just above the actual adjustments.
So, for instance, with this rate sheet there is a price adjustment that reads:
N/O/O > 80% <= 90% 2.500
This means that in this particular loan program, for a non owner occupied property with an LTV of over 80% but less than or equal to 90%, there is a price adjustment of 2.500.
Adjustments always subtract from the price. So... if you have a loan program that has rates and prices like this: (these are actual rates/prices off of todays rate sheet for a conforming 30 year fixed loan)
Rate Price
6.125% .625
6.250% .250
6.375% -.250
6.500% -.750
...... ..... (i'm skipping some places to save time)
...... .....
7.250% -2.625... and you need to apply the price adjustment. You take the 2.500 price adjustment and combine it with the price for the rate you want. That is what the loan will cost you. For instance, if you want a 6.375% rate and for the broker to make no money on it, you combine the 2.500 with the -.250.... and get 2.250. So... in order to get the 6.375% rate... it will cost you 2.250 points to buy down the rate.
If you don't want to pay points, you need to find the rate with the price that will combine with your adjustment to equal a negative number.
A quick note: the negative numbers in the price column above signify the rebate to the broker and the positive mean a cost to the buyer in points. But... all of the adjustments have to be applied, then... if there is a negative number, that is the brokers rebate (commission), and if there is a positive number, that is how many points you will have to pay to get that rate.
Anyhow, back on track. So, according to our example above, if you do not want to pay points and the 2.500 price adjustment is the only price adjustment, you will need to combine the adjustment with the price that equals either 0 (no commission back to the broker, often called Par) or a negative number.
So, since this adjustment is so high, the only rate and price that will equal a negative number is the:
7.250% -2.625
Now, take your 2.500 price adjustment, combine it with the price of -2.625 and you get -.125.
That means, you get the 7.250% rate and your broker gets a .125% rebate, which is really not very much (only $250 on a $200,000 loan! No broker can work for that kind of money).
Anyhow, that is a step by step detailed explanation. Once again, every lender designs their rate sheet differently. Some lenders use "rate" adjustments rather than price adjustments. They work the same... but go against the rate instead.
I hope that helped to clear things up a bit.
Let me know if you have any questions.
Trevor Mauch
The REI Brain.com
Hey, if you have any questions about anything in real estate, business, or anything else. Shoot us an email. Also, if there is a resource that you are looking for… let us know and we will either create it or find it for you.
Have a great day!
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Hey, my name is Trevor and I'm the founder of The REI Brain and a real estate investor since the age of 21. Right now, my focus in real estate investing is multi-family income properties and I have plans on moving more into the commercial real estate investment world in 2008 and beyond. 
I just wanted to say great site. Look forward to reading more.