What is the retail interest rate that a borrower might receive without discount points called?

The retail interest rate that a borrower might receive without discount points is referred to as the Par Rate. This term is significant in the context of mortgage loans because it represents the interest rate that lenders would offer to borrowers with ideal credit and qualifying conditions, without any additional costs or premium adjustments that could come from discount points. Essentially, the Par Rate indicates the baseline cost of borrowing, making it a reference point to determine whether borrowers will pay more or less based on their specific financial profiles.

When a borrower agrees to take a higher interest rate in exchange for receiving funds at closing (like points), or if they are perceived as higher risk, the interest rate will be adjusted above this Par Rate. Conversely, well-qualified borrowers may negotiate a lower rate, potentially below the Par Rate, if they choose to pay points upfront for a reduced interest rate. Understanding the Par Rate is crucial for borrowers as it provides clarity on what they should expect in terms of retail interest rates based on their overall profile.