An important dimension of a mortgage is the price of that mortgage. It’s easy to understand that a 3.5% interest rate is better than a 3.75% interest rate. An important concept that mortgage loan officers need to explain to borrowers is that borrowers can choose what interest rate they want (within a range), and there is a cost or credit associated with which interest rate the borrower chooses. And after that is understood, then this article will explain why although price is an important factor in choosing who to work with, it’s not the only factor and may not be the most important factor, when deciding who to work with.

Say for example:

• A 3.5% interest rate might come with a cost of 1% of the loan amount. This means that on a $100,000 loan the bank would ask you to pay them $1,000.
• A 3.625% interest rate might come with no cost, or what the industry calls “par” pricing.
• A 3.75% interest rate might come with a credit of 1% of the loan amount. This means that on a $100,000 loan the bank would pay you $1,000, which you can use toward offsetting your closing costs.

The reason that there are these “tiers” to pricing is that the lower the interest rate you get, the better off you are, and the less money the bank makes in interest off your loan, so they will ask that you pay an upfront charge for the right to have a lower interest rate. And as the interest rate increases, the more money the bank makes in interest off your loan, so they are willing to give you money upfront as an enticement for you to accept that higher interest rate.

To continue with our example above, if bank A is charging $1,000 on a 3.5% interest rate and bank B is charging $1,250 on the same interest rate, then bank B is considered to have worse pricing. So does this mean that you should choose bank A over bank B? Not necessarily, and in many cases, choosing the more expensive bank may be in your best interest. The process of getting a mortgage loan is not a commodity. If we were talking about buying an ounce of gold, then yes, you should buy from whoever charges less for an identical ounce of gold. However, the mortgage process is more complex than that.

The first thing to consider is the knowledge and experience of the mortgage loan officer you are deciding to go with. As it’s typically most people’s largest financial transaction and much of the public’s wealth is held in real estate, working with someone with the knowledge and experience to guide you through the mortgage loan process’s intricacies, answer all of your questions, and educate you so that you can make the best financial decisions is invaluable; not to mention the fact that the best mortgage loan officers can advise you against making poor decisions, which could destroy your wealth. To illustrate, there are websites out there that can help you draw up a trust for $250. However, why are there attorneys that charge $5,000 or more that have waitlists to also draw up trusts? It’s because these high level specialists add value to the process by using their knowledge to help you optimally achieve your goals, while at the same time they have the expertise to advise you against certain actions that are not in your best interest. In the same way, a mortgage loan officer can add value by ensuring that you are optimally achieving your goals and not taking wrong turns along the way.

It is also valuable to work with someone you trust, like, and get along with. There is a lot of sensitive information handed over such as your social security number, income information, asset statements, FICO scores and much more. Having a sense of trust and comfort is valuable in these situations. In addition, since you will probably be dealing with this person over many conversations, emails, and seeing them face to face, it’s important that you like dealing with this person. It is not a positive experience if you are cringing every time you have to correspond with your mortgage loan officer.

Keep in mind that the overhead costs that all banks have is roughly the same. Though not always the case, it can be that when a bank advertises low interest rates, they make up the money by charging higher fees elsewhere. They can also make up for low pricing by having fewer employees. Though this reduces overhead costs, it can lead to a slower loan closing, or it can mean having staff that are either overworked or undertrained because of high turnover – issues that can mean more mistakes on your mortgage file. Banks that compete solely on price tend to have business models where each employee earns less per loan, and loan officers can make up for that by simply doing more loans. This can mean that your loan officer might not have the time to provide the service that is needed for you to have an customized experience where the sole focus is on you  optimally achieving your goals.

Finally, a lender who tries to win business by undercutting everyone else in the market is no good to anyone if they cannot close your loan. There are lenders out there who advertise the lowest interest rates, but if you read the fine print, then you’ll learn that they have many restrictions that exclude most borrowers or properties from qualifying for their loans, or if they do agree to do the loan, then they charge more fees, which after accounting for make them no longer the price leader. These lenders can cater to only a small group of people, but are good at getting you in the door by advertising jaw dropping low rates. These are the same lenders who have very few loan programs, and if you don’t fit into one of their programs, then they’ll deny your loan leaving you searching for someone else who can help you.