Determining Wholesale Home Loan Rates

The market and the negotiation between the wholesale home loan lender and the borrower determine wholesale home loan rates. Interest rates are set by banks and other lenders and priced to be competitive with the lending rates found among all loan providers. The wholesale home loan rate is set close to or near the discount rate. This rate is the rate that banks and lenders charge each other for the loans that are purchased in the secondary loan market.

When a borrower comes to a mortgage lender for a home loan, they receive a rate that is based on their credit rating, among other factors. In many cases, these loans are repackaged and sold to other lenders as a way to reduce the lenders to default risk or the risk that the loan will not be paid back. The repackaging of the loan results in a secondary market for the loan and the rate that is set is determined as follows:

Determinant #1: Prevailing Interest Rates

The prevailing interest rates that are being offered by mortgage lenders will be used as a guide for a wholesale home loan. Wholesale home loans are typically provided at a discount to the traditional mortgage rates being offered. Finding out what that rate is will require you to contact the lender directly for a quote based on your situation. Many of the lenders that are found online do not post these rates and require contact in order to determine the best loan for you.

Determinant #2: Available Market for Resale

The wholesale home loan company is active in the secondary market, buying and selling your loan to other lenders. This activity is legal and is how the wholesale home loan company makes money. The more active the secondary market for your loan is, the lower the interest cost that you pay.

Determinant #3: Credit Rating

Your credit rating is always used to determine the rate that is most appropriate to you and your lending needs. The credit rating gives the lender a sense of your creditworthiness or set the requirement for collateral or equity that must be available in order to complete the loan. You should check your score periodically through the 3 major credit reporting bureaus to be sure that the items reported are correct and that you do not have any credit history items that will cause you to have a negative report.

One caution is that when you search for a wholesale home loan from a lender, be sure to check their credentials in order to determine whether they are reputable and that the loan being offered is a wholesale home loan that has been determined based on a verifiable criteria. This will prevent you from being the victim of a bait and switch or other form of consumer fraud.