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You're sitting in
front of the television and a familiar mortgage advertisement pops
on. "You can get a mortgage for $995!"
Of course you can.
Through any mortgage lender in the United States.
The ad is truthful,
and as required, includes the federally mandated Annual Percentage
Rate information. What it doesn't say is that your mortgage
interest rate will be about quarter percent higher than that of a
borrower willing to pay a one-point loan origination fee.
It lets you assume
that you are getting a "deal."
You aren't getting
something for nothing.
That isn't a bad
thing. Lots of people don't want to pay points when they
obtain a mortgage. However, some novice borrowers
and home buyers may
think they are getting
the same rate as other
people who pay points...
...only without paying
points.
That isn't how it works.
You pay now - or you pay
later.
On a $200,000 loan at
today's rate, a quarter
percent difference in
payment means a
difference in monthly
payment of about $32.
That isn't a big deal,
but if you keep the loan
more than five years and
two months, you save
more money paying the
point. On a
$300,000 loan the
payment difference is
$50 and you save more
money after five years -
by paying one point.
But this article is
about advertising, not
savings.
You see, the purpose of
mortgage advertising is
to make the telephone
ring at the lender's
office. They make
the telephone ring by
leaving out key information or allowing you to make
assumptions that are not quite accurate.
Mortgage lenders all
get their money from pretty much the same place, but if they told
you that in the ad, there would be no reason for you to call.
The same loans
everywhere.
To get some
understanding of mortgage advertising, next Sunday look at the
furniture advertising in your newspaper. An ad promoting a
"Five-piece bedroom set for $899!" will probably be in the
advertising section along with a photo showing a beautiful
queen-sized bed, a bureau with a mirror, a chest of drawers and two
end tables. Five pieces. Being a smart consumer, you
know you don't get the mattress, of course.
So you pile into the
car and drive to the furniture store.
But you don't get
everything in the photo. What you really get is the headboard,
the footboard, the bed frame, the bureau and the mirror. Five
pieces, but not what you expected from the photo.
You made an
assumption.
Mortgage ads work
the same way. They allow you to make inaccurate assumptions.
So what do you do?
Except for mortgage
lenders, who knows the most about mortgage loans?
Real estate agents.
Ask your real estate
agent for a referral. They don't earn kickbacks from lenders
(that's against the law), but they will know several local
dependable lenders that will provide personal attention, walk you
through the process, and be responsive to pages or calls to their
cell phones.
So next time you see
a mortgage ad on television and it promises fixed rates that are a
full percent lower than what you see available on the graph in this
newsletter, ask this question:
"What information is
missing from this ad?"
They could be
talking about a fifteen year rate. Or a 30 year mortgage, but
the rate is only fixed for the first five years. And so on...
Be an informed
mortgage consumer. Read our Mortgage Articles that come with this
newsletter by clicking here.
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