Don’t fall for that “too good to be true” interest rate offer!

I have the advantage of being in the industry and can see a misleading offer a mile a way.

Recently, I was shown an offer for a VA refinance at 2.25% (3.94%Apr) and had to dig into it.  Sure enough this national, Internet only, lender was offering a 3 year adjustable rate VA Loan.  Furthermore, it had a 1% origination fee plus at least 1% in discount points.  On a $150,000 loan that would be over $3000 in additional costs borrower would have to pay just to save about $75 a month instead of taking a 30 yr fixed rate in the low 3’s.  In today environment, it just doesn’t pencil out when you run the savings vs the cost and the projections for long term interest rates.

Now to be fair, I do have adjustable rate mortgages available to my Idaho Mortgage seekers, I just don’t think they are the best choice for most borrowers.  If someone just has to have the lowest rate and will tolerate the risk of an adjustable rate mortgage, then I guess I would write the loan for them after much disclosure of how much they are going to pay if the loan adjusts to its maximum over the life of the loan.

Many times online only lender use these advertisements to simply make the phone ring and then switch the borrower to a normal fixed rate loan once they find out that too good to be true rate is for an adjustable rate mortgage.  This is a classic case of “bait and switch.”

 

 

 

2 Thoughts on “Don’t fall for that “too good to be true” interest rate offer!

  1. Outstanding post however , I was wanting to know if you could write a litte more on this subject?
    I’d be very thankful if you could elaborate a little bit more. Kudos!

  2. You can’t help but turn on the TV and get bombarded with ads featuring low rates for your refinance.

    As a seasoned professional, I can pick up right away at how much its going to cost you to get that low rate. Look at the APR rate to start. Usually the spread is enough to indicate origination points and discount points.

    I’m doing most of my loans at the “no points” and sometimes no points, no fees rates. They are a little higher, but the client never loses because their closing costs have been covered. If the rates drop again, we can do another at no cost.

    People tend to move every few years, so if you pay closing costs and points, you probably wont recoup the costs. A typical discount point takes 7 years to recoup the money spent to get that 1/8th or 1/4 less rate.

    Don’t be so caught up in getting the lowest rate that you miss the lowest total cost.

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