Mortgage Q&A: “How to get a wholesale mortgage rate?”
Wholesale mortgage rates are typically considerably cheaper than their retail counterparts, though it’s never a guarantee.
What Is a Wholesale Mortgage Rate?
- It’s a mortgage rate offered by a mortgage broker to a homeowner
- Via the B2B wholesale lending channel
- They differ from retail mortgage rates
- Which are obtained directly from the bank or lender
Mortgage brokers work as middlemen (and women) between homeowners and mortgage lenders.
Typically, they have a handful of wholesale banks they work with directly, all with different rate sheets.
Once they begin working with a borrower, they can compare rates among these lenders and ideally provide the borrower with the lowest rate among them.
Instead of shopping with a single retail bank or credit union for a mortgage rate, a broker can shop your loan application around with a number of different lenders all at once to find you the most competitive rate.
So the advantage can be two-fold, as you can benefit from both access to wholesale rates and a greater number of different lender options to compare. And you don’t have to do the legwork.
This can be especially helpful if you’re not one to shop around, which is apparently a lot of people out there.
Wholesale Mortgage Rates Come with Associated Rebates or Costs
- Your wholesale rate might have a commission baked in
- Meaning you won’t have to pay for it out-of-pocket
- The trade-off is a higher interest rate
- Unless you’re willing to pay points at closing
In the past, brokers could earn a commission for offering a rate above market, known as the yield spread premium, while also getting an upfront commission. This has since been outlawed to prevent steering borrowers into high-rate loans.
They aren’t allowed to do both, so they must choose between borrower-paid or lender-paid compensation.
If there is a cost associated with the interest rate, the borrower will have to pay mortgage discount points to obtain that rate.
If there is neither a cost or a rebate, it is considered the par rate, meaning you receive the exact rate you qualified for. However, certain closing costs may still apply.
If there’s a rebate it goes to the borrower via a lender credit, meaning it can cover some or all of your closing costs so you don’t have to pay them out-of-pocket.
This can be quite beneficial if you’re light on cash or simply don’t want to pay for a given rate.
Wholesale Channel Might Not Offer the Best Pricing
- Wholesale mortgage rates may not be lower
- Despite brokers often claiming they are
- There are a lot of different lenders out there with competitive pricing
- So it’s wise to shop both the retail and wholesale channels
As with anything else you shop for, it’s important to keep in mind that a wholesale rate may not always be the best deal for you.
Retail banks can compete with wholesale lenders by charging lower fees and/or using existing relationships to knock down the mortgage rate.
So while a broker may tell you they’ve got access to the lowest rates available, they may not be able to compete with certain banks or credit unions you have a prior relationship with.
Or it could be that a retail bank (or online mortgage lender) has a pricing special for a given loan product that the wholesale guys simply can’t match.
In summary, it’s best to compare both routes (mortgage brokers vs banks) to determine which is best for your unique situation and loan needs.
You should certainly put in the time to compare different rates at a variety of banks to ensure you don’t miss anything better that might be out there.
Tip: If your loan scenario is particularly tricky, you may be best served by going with a mortgage broker, as they’ll be able to find potential solutions in a shorter period of time.