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What Is the Best Interest Rate I Can Get on My Loan?

Posted by J.S.

July 24, 2008

This simple question is probably asked thousands of times every single day and can be answered in thousands of different ways. Long ago, I was given what I consider to be the best answer ever for that question! Whatever the best rate is, that a buyer can get at the time the deal is made that works for both parties. THAT is the best interest rate. When both parties come away from the table happy, that is what you call a great deal.

A perfect example of this is related below:
A couple was in the middle of a long divorce that was finally close to finalizing. The woman had not worked outside of the home in over thirty years, had no credit independent of her spouse and no income other than what was to be paid in spousal maintenance. She found the perfect home for herself and her companion dog. However, she had to make an offer while divorce was still pending. The woman’s financing options were worse than limited, they were nearly non-existent.

She purchased the home with an 11.99% APR (annual percentage rate), with a five year balloon payment of $10,000.00 with an additional $5,000.00 balloon payment every five years thereafter. However, the most critical item in the entire contract for the woman was the no pre-payment penalty clause. She knew that the contract would be renegotiated long before the first balloon payment was due.

Although she could have renegotiated the contract sooner, she waited for a full two years. During that time she built her own credit, made wise investment choices with her proceeds from the divorce settlement and proved to the bank that she was a good credit risk. At the time of the original loan, it was the best interest rate she could get to make a deal that was agreeable to both parties.

With the current mortgage market as it is, credit has never been cheaper for the well-qualified buyer and extremely expensive, if obtainable at all for the limited credit holder.

Therefore, it truly does not matter per se what the actual interest rate is for any particular deal on any particular day. What may be good to one person may be incomprehensible to another. What truly matters in the end is that each person comes away from the deal feeling that they got a good deal.