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Shopping for the best Mortgage rate possible has always been the primary objective when borrowing a home loan. As well it should be! The challenge with this strategy is that there is much misleading information released on the subject by various media. Internet websites and email marketing, along with other media such as radio, television, and billboard advertising, have brought the importance of interest rates to the forefront of consumers’ minds.
Bait and Switch Technique
The problem with this type of marketing is that it is designed to make the lender’s phone ring. Often, the advertiser offers a ridiculously low mortgage interest rate, with the intent of using a bait-and-switch technique once the client is reeled in. This is often done through short pricing.
Short pricing is a term that is used when a Mortgage lender offers an extremely attractive interest rate, but that rate is only locked-in for a very brief period of time.
The Short Lock Period
The average consumer enters into a purchase contract to buy a home for at least 30 days. Pricing on an interest rate locked in for a 7-day period is of no use to most prospective home buyers. It simply isn’t enough time to complete the transaction. While the billboard advertising or Internet banner ad may boast a terrific rate, the lock-in period is often not realistic in terms of providing enough time to negotiate a purchase contract and close the deal.
So, be very careful when shopping for interest rates. Make sure that when you are quoted a rate, you are asking the broker what the lock duration is. Make sure that the lock period allows you enough time to complete your purchase transaction.
Comparing APR May Not Work All The Time
Another common marketing ploy that makes mortgage interest rates appear attractive is geared around the manner in which fees are presented. This applies to home buyers as well as those looking to refinance their homes. All lenders are required by law to state the real cost of the financing through the Annual Percentage Rate (APR) each time an interest rate is quoted in advertising. APR takes many of the fees associated with the loan into consideration, and it is usually listed in fine print as a disclaimer. Advertisers often list a low-interest rate in large bold type, but the higher APR indicates in fine print that several points are being charged to get that rate.
While APR can be helpful in comparing rates seen in advertising, it is important for consumers to know that mortgage lenders use different methods to calculate APR. Hence it is not an entirely fail-safe method for comparing interest rates.
Are Points Included In The Quote Or Not?
Additionally, the consumer must take into consideration that the interest rate is not the only important factor in obtaining financing. Another equally important question to answer is, “How long do I need to borrow this money? The length of time you need to borrow the money has a profound impact on whether or not you should be paying upfront fees (points), and likewise has bearing on your loan program selection.
Check on Lender’s Expertise and Credibility
Also, consider the expertise and credibility of the mortgage lender. Google them to see if they have been covered favorably in media. Check their Yelp and Google+ rating and read client reviews. I know of a large mortgage company that consistently advertises the lowest mortgage rates, but has almost 600 complaints with Better Business Bureau. Would you work with such a lender even if they have the lowest rates?
A well-versed consultant will ask you many questions about your short- and long-term goals and assist you in choosing a loan program that is truly suited to those goals.
In conclusion, with mortgage rates being as low as they are currently, taking advantage of this low rate scenario whether refinancing or buying is paramount.