How Rates and Closing Costs are Connected

I’ve heard it said that “Interest rates don’t change, just the cost of interest rates change.” I like this because it helps me understand the way rates and discount points are connected. Knowing a few key facts will improve your confidence and help you become a smart mortgage shopper:

What does “Current Interest Rate” mean?

In our business we use the buzzword “par” to reference the current interest rate. What par means is “without any points or credits.” Points are defined as fees paid to obtain a certain interest rate. They are technically called “Discount Points” because you get a discounted interest rate by paying them. It also works in the other direction, if you take rate that is higher than par, you receive a credit back from the lender in cash at closing.

Everyone is lending the same money

The two main differences in quotes received by a loan shopper come from timing and presentation. In order to eliminate the first one, make sure you are getting quotes from your contenders at the exact same day/time. Presentation requires a little more skill.

If you’re looking for the best rate – you will probably see higher closing costs on your quote.

If you’re looking for the lowest closing costs – you will probably see a higher rate on your quote.


Experienced loan officers know within the first few minutes whether their client understands how things work. As a consumer, you should be able to detect whether the person on the other end of the phone call is trying to help you understand your options – or trying to sell you something.

You can relax a little bit because laws now prevent lenders from charging more to less knowledgeable clients or to those who aren’t good shoppers. And if you’re shopping, you’ll find most lenders are really pretty close to each other on rates and costs. Most of the difference is usually a misconception caused by extremely complex quotes.

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