You can not escape them! Mortgage lenders are out in force on your computer, radio, television, telephone and in your mailbox, on billboards, and nearly every print media you can think of. The other day I even had an offer for a free credit report on the sleeve of my latte from a mortgage broker. That got me thinking.

All of us want a good deal and no one wants to pay more than they have to, but what is the deal?

“No closing costs!”
“No out of pocket expenses!”

Or better yet: “Take a year off from your mortgage payment!”

Maybe I can help you understand what these mean. Let’s start with the facts. Rates do not change- what changes is the cost to buy the rate. This is used to create an illusion. The par rate is the interest rate with no discount points or origination fees.

You can buy the rate down by paying these costs or you can buy the rate up and have the lender pay you- often offsetting the closing costs. You are, in fact, paying for the closing costs by taking a higher rate. You need to know the par priced rate and what the true costs are to know if opting for the no closing cost option is right for you.

Also the option to roll the closing costs into the loan, whereby having no out of pocket expenses, still means you are paying for these costs. This is not necessarily a bad thing. It is just as important to know how you are using your equity as a tool as it is to understand what the costs in fact are.

I cringe when I hear the ad about taking a vacation from your mortgage payment only because of the way it is presented. Nothing is free and no one will give you free money. You are paying for that year and it will cost you much more in the long run by deferring those payments. It is a year free from mortgage payments but not a free year. And you pay a premium (higher) rate over the lifetime of the loan as a bonus!

If it sounds too good to be true, it probably is!

Some of the other slogans that echo in my brain are “Special Low 1% Interest” meaning adjustable rates, hidden costs and negative amortization. Not so special, especially if it comes with a prepayment penalty! “5% Fixed Rate Mortgage- with a 6.45% APR” meaning you are paying a ton in fees to buy that rate. “We will beat any written offer” meaning you do the shopping (work) and we will make the money. “Let lenders compete for your loan” is a nice way of putting your information on a list that will get you spammed for years. “Interest rates are at their lowest levels ever!” is a trumped up call to action. While rates are currently very good, they have been lower, and also have been very stable over the last year. Remember, any rate is available at a cost.

It is easy to be tempted by the “free” appraisal or “free” credit report, or the $1,500 off your closing costs- but without knowing what all of the other costs involved really are you have no idea if you paid for it somewhere else. I like to know what I am paying for. And I like to let you know what you are paying for. Some people feel better thinking they got a “free” appraisal. Most of you feel better knowing that by working with us, you never paid too much!

Let me know if you have any questions!

Deb Dickason
Mortgage Mart, Inc.
206-686-4441