The mortgage industry is very competitive. Most consumers are focused on one thing … the interest rate. And for a good reason. It is a measurement for determining how much the mortgage payment will be. Everyone wants the lowest rate possible, and it would be silly to not want that. Lenders obviously know this and so they deliver clever messages telling consumers what they want to hear.
Buyer beware. There is a lot of fine print out there that mortgage lenders hope you don’t read.
The interesting thing about rates is that just about every lending institution (bank, mortgage banker, mortgage broker) gets its borrowing power from the same sources. So, that means all these types of companies can have the exact same rates as each other. Most of them do.
It’s when you see a rate advertised that seems lower than what the norm is that you should beware. Here is an example pulled from a very large company that pays a lot of money to advertise how its loan process is as fast as a rocket.
The payment on a $200,000 30-year Fixed-Rate Loan at 4.375% and 75.00% loan-to-value (LTV) is $998.58 with 2.125 points due at closing. The Annual Percentage Rate (APR) is 4.657%. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Some state and county maximum loan amount restrictions may apply.
I’ve highlighted the areas of interest. This snippet was pulled two weeks ago when the average 30-year conforming rate was about 4.5 or 4.625 percent. You can see the rate advertised (in green) is lower than the average on that day. Looks intriguing to a general consumer.
But a closer look at the components in yellow shows a grossly inflated fee structure (enter green-faced vomiting emoji). The rate advertised requires 25 percent equity (that’s a $50,000 down payment!) and 2.125 points (known as discount points) as a charge due at closing. That equals $4,250 as a one-time charge in addition to the standard loan closing costs and pre-paid (taxes and insurance) items.
It’s fair to ask the question of why this large company would be so expensive for a rate that is barely lower than the average 30-year fixed rate that given day. The reason is that someone must pay for all the overhead, real estate, and advertising for these larger companies and banks.
If you see a bank advertising on TV with famous athletes or if a bank has a lot of buildings in desirable neighborhoods, you can make a safe bet that there will be plenty of fine print associated with their mortgage loans.
The important thing in today’s post is that if you as a consumer are focusing only on the rate … you could be walking into a wasp’s nest. Think more of the entire picture; rate, cost structure, APR (annual percentage rate) and don’t forget about the quality of service.
It’s not easy to compare loan offers. If you’d like a second opinion on a loan proposal you’ve received, we are happy to take a look at it free of charge. We’ll point out any unusual fees or terms and let you know if you’re getting a solid deal. No fine print required.