Definition
Par Rate
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A mortgage par rate is the interest rate tagged to a home loan in which any addition or subtraction is not applied, which is why it is also often referred to as the breakeven rate.
This essentially means that a lender who offers a home loan on a par rate to a borrower would not be making a profit or loss on the loan.
This makes the par rate a useful benchmark to compare competitive loan packages and also evaluate whether certain promotional rates make economic sense to offer to the general public.
While most property buyers would end up taking on housing loans that are above par rate, obtaining loans before the par rate is not unheard of.
This is especially so when the loan package is a board rate loan with interest rates below par rate during the first few years of the loan to attract borrowers.
Borrowers on these types of loans would eventually pay above the par rate after the initial interest rates.
Because SIBOR is the rate in which banks loan from one another, it is often seen as the par rate or very close to it.
If the cost of funds for a lender is above SIBOR, then they might as well borrow at SIBOR rates to lend to a willing borrower.
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