Mortgage Advertising and Missing Information
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 a "deal" - 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 savings isn't the point of this article - advertising is.
You see, the point of mortgage advertising is to make the telephone ring. Lenders make the telephone ring by leaving out a key piece of information or allowing you to make assumptions that are not accurate.
Once they get you on the phone, talking, asking questions, answering questions -- you suddenly find yourself a client of that particular lender. The people answering the phone are salespeople.
As a comparison, next Sunday look at the furniture advertising. 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 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 everything in the photo.
You made an assumption.
Mortgage ads work the same way. They allow you to make assumptions.
So what do you do? Who knows more about mortgage lending than anyone but mortgage lenders?
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 is the missing information?"
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.
© January 2004 by RealEstate ABC
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