By now most of us have seen the ads on your favorite web home page, 2% home mortgage rates, when banks compete you win, Historic low rates – Do not miss out and so on. I am in the business and I am so tired of seeing these ads on my home page. Just my opinion is the one with “When Banks Compete You Win” bothers me the most. The reason is when a marketing company runs and ad stating that when banks compete you win the marketing company should not be one of the companies competing. Again just my opinion but this is clearly a conflict of interest.
By now the average borrower clearly understands that the 2% interest rate is clearly a teaser rate. We all know or should know that this rate is nearly unobtainable. For those of you that want to believe let’s break this down. Yes you could get this rate but at what cost? Simply put are you willing to pay 2% of the interest rate up front? This rate can only be obtained with a buy down or aka points.
|2% vs 4% Mortgage Breakdown|
|Rate||2% – Adjustable||4% – Fixed|
|Points||4 Points||No Points|
|Loan Cost For Rate||$8,000||Zero|
|Loan Terms||30 Yr.||30 Yr.|
|Rate Adjustments||Rate adjusts after 3 yrs.||Fixed for life|
|Payment – P & I Only||$739.24||$954.83|
|Buy Down Cost Monthly||$222.22||Zero|
So let me ask you now, is the 2% rate in a borrowers best interest? Yes you can get an incredible low rate but is will actually cost you more than a fixed higher rate loan. The math does not lie.
Again just my opinion, with the above breakdown the only ad that is truly honest with us is the ad that rates are low. This is the ad that we chose to ignore as we see it all the time and have become numb to it. The truth behind this is rates themselves never change; it is the cost for a particular rate that changes. It is just easier for the average person to ask “what is the rate today” as the math behind the cost can be difficult.
As always if you are looking to obtain a new home mortgage for a lower rate, need some additional cash or purchasing a new home get more than one mortgage quote. Two to three will paint you a good picture as to your personal scenario. Your bank and your local broker are a good place to start. Also if either asks you for a penny upfront for anything thank them for their time and move on. Many Lenders both banks and brokers will ask for a deposit in an attempt to lock you in. The industry uses the phrase “take the deal off the street” which is not in a borrowers’ best interest. These deposits are requested for credit reports, rate locks, underwriting, appraisals or whatever other label a mortgage company comes up with. The only fair fee is the appraisal fee but not until after you have received your loan approval. If you have money already paid into a deal you are less likely to look at another mortgage company as you are fearful you will lose the money already paid. You have a go reason to be fearful as you have fallen into a trap.