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- Par Rate vs. Interest Rate: What's the Difference?
- Why Mortgage Par Rates Matter
- Frequently Asked Questions
Par Rate vs. Interest Rate: What’s the Difference?
The par rate is a baseline pricing rate. The interest rate is the actual rate the borrower accepts on the mortgage. It’s possible for your par rate to be the same as your interest rate, but they can be different. A borrower’s final mortgage interest rate may be:
- Equal to the par rate if no discount points or lender credits are used
- Lower than the par rate if the borrower pays discount points
- Higher than the par rate if the borrower accepts lender credits
Keep in mind that your par rate—and in turn, your final interest rate—will be impacted by your home’s location, the home price and loan amount, the size of your down payment, the length of the loan term, the type of loan and the type of interest rate.
Why Mortgage Par Rates Matter
The par rate matters because it gives borrowers a simpler way to compare rate-and-cost combinations. Without understanding the par rate, a borrower may focus only on the lowest of several advertised interest rates and overlook the cost (like paying for points) required to obtain it.
Borrowers should keep in mind that a lower interest rate may come with upfront fees. A higher rate may come with a closing cost credit. The best fit depends on the borrower’s financial goals, expected time in the home, available cash and long-term plans.
For example, a borrower who plans to keep their mortgage for many years may benefit from paying upfront points to get a lower interest rate. A borrower who expects to sell, refinance or move sooner may prefer to preserve cash at closing, even if that means accepting a slightly higher rate.
