APR and FBI, CIA, USDA, FDIC, ATF, USPS, SEC, NASA, HUD. A lot of terms and abbreviations these days seem like alphabet soup! Interest Rate and APR (Annual Percentage Rate) are two of the most commonly confused terms in the mortgage business.
Blog Category: rate shopping
One motto I follow in life is: do not be sold, be educated. One of the favorite t-shirts that I have is an old, tattered blue t-shirt that has the words “I Need Advertising To Help Me Decide” written across the front. I love the sarcasm and the not so subtle message. It is discomforting that so many people let themselves get sold, as opposed to taking the time to learn, study, analyze and decide using proper business analytics. I see this in the mortgage world more than you would think.
Why do I feel like when someone calls me to talk about interest rates, they are calling multiple people, scouring the internet, and getting a lot of misinformation? I have a good friend who works at Freddie Mac (FHLMC) who I met for dinner recently. Over dinner conversation she mentioned that when FHLMC sends out their report on average interest rates. They get calls daily from homebuyers and people interested in refinancing. These people ask how to apply with FHLMC for that rate! My friend says the callers will say, “Can I get that rate from you that you guys reported, I can’t find it anywhere else!” They then have to explain that FHLMC is not a lender. FHLMC is a corporation authorized by Congress to provide a secondary market for residential mortgages.
Everyone wants to get the best deal reasonably possible when getting a mortgage. I say reasonable, because although some lending sources advertise what seem like unreal rates, most consumers are smart enough to discount what appears to be a free lunch. The reality is that even with hundreds of competitors, rates never vary by much more than 1/8% in rate. But hey, who does not want every 1/8% to be in their favor?! I do. So go for it. But here is the problem with shopping for that best 1/8% deal online:
Getting a mortgage is easy, right? You apply for the loan, you send in some paperwork, someone appraises the home, if your credit is OK, a little bit later you get a mortgage. Right? It should be that easy, I agree. We have the technology and desire in place to make the mortgage process easy, I believe. But getting a mortgage has become the most arcane, complicated, minutia filled experience ever. It is worse than going to the Department of Motor Vehicles, by far.
Going dark on your salesperson. All salespeople have experienced this, no matter how good. You educate a potential client, you spend hours and hours with them answering questions, you create a relationship, and you truly seek to help them to earn your commission. And then it happens, they go dark. No contact. No return calls. No email reply. No nothing. It is eerie. You start to wonder what you did wrong.
One motto of Lending Tree is, “when lenders compete, you win.” Yes, I agree. But that should be expanded to be considered even somewhat accurate. If Lending Tree were my company I’d say, “when experienced, legitimate, local lenders compete, you win.” But then , I’d have just put myself out of business. So I guess I would not say that if I owned Lending Tree or some other “lead generation” website.
Is paying points on a loan a good idea? When you buy a new home or refinance, it can be a nervous and exciting time. And getting excited and nervous causes people to over analyze and sometimes make poor decisions. Sometimes a client will ask for a lower rate by paying discount points. Each discount point is 1% of the loan amount. This is $1,000 per $100,000 in mortgage. It sounds great to get a rate that is a half percent lower than what you hear about in the news or see online (shopping for rates online is not accurate, see this story for more on that), but what about the costs?