Par Rate Calculation

Par Rate Calculator

Enter 1.00 for 1 point cost, -0.50 for a 0.5% credit.

0.25% Rate per 1 Point (Standard) 0.125% Rate per 1 Point 0.375% Rate per 1 Point

Estimated Par Rate: 0.00%

function calculateParRate() { var quotedRate = parseFloat(document.getElementById('quotedRate').value); var points = parseFloat(document.getElementById('pointsOrCredits').value); var factor = parseFloat(document.getElementById('conversionFactor').value); var resultDiv = document.getElementById('parResultContainer'); var finalParRateSpan = document.getElementById('finalParRate'); var parDescription = document.getElementById('parDescription'); if (isNaN(quotedRate) || isNaN(points)) { alert("Please enter valid numerical values for the Quoted Rate and Points."); return; } // The par rate is the rate where points are zero. // If someone pays 1 point to get a 6.5% rate, and 1 point equals 0.25% in rate, // the par rate (where they pay 0 points) would be 6.5% + 0.25% = 6.75%. // If they get a credit (negative points), the par rate is lower than the quoted rate. var rateAdjustment = points * factor; var parRate = quotedRate + rateAdjustment; finalParRateSpan.innerText = parRate.toFixed(3); var text = "Based on your input, the rate where you would neither pay discount points nor receive lender credits is approximately " + parRate.toFixed(3) + "%. "; if (points > 0) { text += "Since you are currently paying " + points + " points for a " + quotedRate + "% rate, your Par Rate is higher than your quoted rate."; } else if (points < 0) { text += "Since you are receiving a " + Math.abs(points) + "% credit for a " + quotedRate + "% rate, your Par Rate is lower than your quoted rate."; } else { text += "Your quoted rate is already at par."; } parDescription.innerText = text; resultDiv.style.display = 'block'; }

Understanding the Par Rate in Mortgage Lending

In the world of mortgage financing, the par rate is the interest rate offered by a lender that requires no additional cost (discount points) from the borrower and provides no rebate (lender credits). It is essentially the "zero-point" interest rate.

How Par Rate Calculations Work

Mortgage pricing is dynamic and changes daily based on the bond market. Lenders create a "rate sheet" that lists various interest rates and the associated cost or credit for each. The par rate is the equilibrium point.

• Discount Points: If you want a rate lower than the par rate, you "buy down" the rate by paying points upfront. 1 point typically equals 1% of the loan amount.
• Lender Credits: If you choose a rate higher than the par rate, the lender may give you a credit to help cover your closing costs.
• The Conversion Factor: While it varies by lender and market conditions, a common rule of thumb is that 1 discount point reduces the interest rate by approximately 0.25% (25 basis points).

Practical Examples

Imagine a lender offers you a 6.500% interest rate, but it requires you to pay 1.000 point (1% of your loan amount) at closing. To find the par rate, you need to determine what the rate would be if those points were removed.

Example 1: Buying Down the Rate
Quoted Rate: 6.50%
Points Paid: 1.00
Conversion Factor: 0.25% per point
Calculation: 6.50% + (1.00 * 0.25%) = 6.75% Par Rate

Example 2: Taking a Credit
Quoted Rate: 7.25%
Lender Credit: -1.00 point
Conversion Factor: 0.25% per point
Calculation: 7.25% + (-1.00 * 0.25%) = 7.00% Par Rate

Why Does the Par Rate Matter?

Finding the par rate is essential for comparing offers from different lenders. One lender might quote a very low interest rate that looks attractive until you realize it requires 2 points in fees. By calculating the par rate for every quote, you can see which lender truly has the most competitive base pricing before adjustments.

Note that the actual "Par Rate" available to you is influenced by your credit score, the Loan-to-Value (LTV) ratio, and the property type. These are known as Loan Level Price Adjustments (LLPAs).