Imagine this, you're sitting in front of the TV watching the ball game and a familiar mortgage advertisement for a well known national mortgage lender comes on; "$395 Flat Fee."
Well of course you can, and with any mortgage lender in the country, and even in your own back yard.
The ad you’re seeing is truthful, and as required, it probably includes the federally mandated disclosures such as Annual Percentage Rate (APR) information. But what it doesn't say is that your interest rate will likely be higher than that of a borrower willing to pay closing costs and/or points to discount his rate plus the $395 Flat Fee only covers the appraisal, notary fee, processing fee, lender title insurance and the recording fee. What it doesn’t cover, and doesn’t disclose are pre-paid interest, mortgage tax, property and transfer taxes, mortgage insurance, hazard insurance and any monies required to fund any escrow or impound accounts.
The ad lets you assume that you are getting a deal but you aren't getting something for nothing.
That isn't necessarily a bad thing. For example, lots of people don't want to pay points when they get 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’s not how it works. You pay now, or you pay later.
On a $200,000 loan at today's rates, a quarter percent difference in rate means a difference in monthly payment of about $32. That may not sound like a big deal, but if you keep the loan for more than five years and two months, you actually save more money by paying a point. On a $300,000 loan the monthly payment difference is $50 and you save more money after five years by paying one point. Most people are afraid of paying points. Points have a bad reputation but the fact of the matter is that points are simply pre-paid interest. You pay that interest upfront to gain the savings long term.
But this article is about advertising, not savings. You see, the purpose of mortgage advertising is simple. It’s to make the phone 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 the same place, but if they told you that in the ad, there would be no reason for you to call them directly.
To get a better 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 advertised along with a photo showing a beautiful queen-size bed, a bureau with a mirror, a chest of drawers and two end tables. Five pieces. Being a smart consumer, you probably already know that you don't get the mattress, of course, but the picture in the ad includes a mattress, maybe even a clock radio on the nightstand and a lamp or two.
So you pile your family into the car and drive to the furniture store where you are approached by the first salesperson who you make eye contact with.
Upon seeing the bedroom set in the store, you quickly realize that you don't get everything shown 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 one might expect from the photo in the ad.
You made an assumption, just like anyone else might. Some mortgage ads work the same way. They allow you to make inaccurate assumptions.
So what do you do? Besides mortgage lenders, who knows the most about mortgage loans? Real estate agents, right? Ask your real estate agent for a referral. They don't earn kickbacks from lenders (that's illegal), but they will know several local dependable lenders that will provide personal attention, will walk you through the process, and will be responsive to your needs when you call after business hours.
So, the next time you see a mortgage ad on TV and it promises fixed rates that are a full percent lower than what you see available in the local market, ask yourself this question, "what information is missing from this ad?"
Perhaps they’re talking about a fifteen year rate or maybe a 30 year mortgage payment but the rate is only fixed for the first five years. The possibilities are endless.
The reality is this; if it sounds too good to be true, then it probably is. Be an informed mortgage consumer. Pick up the phone and ask questions. Rochester has many reputable lenders. Just ask around and you’re likely to hear the same names over and over again.