Mortgage par rate means that rate does not cost you nor does it create any money. Also, there is no par rate that is the same for a mortgage originators. One companies par rate can be different than others because they have different wholesale sources.

Mortgage Par Rate Definition

Par rate is a rate that does not cost money or create money. Mortgage rates are quoted on a scale. On the low side, a rate costs money and you would pay that in the form of a discount point. Then as a rate moves higher up the scale, there is a point where no money is needed. That point would be par.

As the rate moves higher past par, it actually creates money in the form of yield spread premium or service release premium. When money is created from a rate higher than par, it goes to the mortgage originator who can use to pay all or part of your costs or use it to pay themselves.

Here is an example of how mortgage rates work.

6.25% (.500%) YSP points rebated by lender
6.125% (.250%) YSP points rebated by lender
6.00% 0.00% No YSP or Discount = Mortgage Par Rate
5.875% .250% Discount points required by lender
5.75% .500% Discount points required by lender

For this example, 6.00% would be the par rate for that day. 6.125% and 6.25% both create money. When a rate creates money, the percentage of money it creates is either expressed in parenthesis or a minus sign. 5.875% and 5.75% cost money.

Most days do not produce the easy par rate like the example above. Usually, there is a little money either needed or created.

Here is an example of a rate sheet you will see on most days.

6.25% (.500%)
6.125% (.375%)
6.00% .125%
5.875% .250%
5.75% .500%

On this example, there is no mortgage par rate. The closest to par we can get is 6.00%. .125% is the smallest amount so therefore it is the closest to par.

Usually, the only people who talk about par rates are in the mortgage business and they are talking about a wholesale rate sheet. But many mortgage companies take the wholesale rates and increase them. They give their sales force a rate sheet that already builds in profit for the company. They may tell you it is par but it is not. When you close, the extra money from the increased rate you pay goes to the mortgage company.

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