Home Loan Guidance Articles

Beware Those Bargain Interest Rates!

The Federal Reserve has been lowering the discount rate faster than you can shake a stick. On top of that, inflation expectations are at some of the lowest levels. So, today's interest rates on home mortgage loans appear like the bargains of a lifetime. WAIT! Unless you're ready to buy the Brooklyn Bridge too, don't be fooled. The interest rate is just one factor in the total cost of the loan that keeps you living in the most the most expensive purchase of your lifetime.

These ubiquitous mortgage loan ads tell you their rates are the lowest - as if that's all that matters. Lenders and mortgage brokers have more ways of charging you for that loan than you know. These include discount points, closing fees, appraisal fees, insurance, and even prepayment penalty costs.Each of these can eat away at your interest cost reduction faster than your Uncle Harry puts back a six-pack on Sunday afternoon.Add these costs up, and you can find that the bargain-basement interest rate loan will throw off enough cash to buy a Lexus - not for you, of course. For the mortgage broker.

We talked with one nasty mortgage professional who volunteered the following information.He bragged that during the loan deal, he could slide enough imperceptible mini-closing costs to drop the rate by an eighth of a percentage point, and still make more money on the backside.Good job, buddy.I'm sure your kids will be proud.

Over and over again we hear about "surprise" prepayment penalties that cost nothing upfront, but restrict you from ever refinancing or making early payments later. That penalty - slapped on at the last second - can drop a wad of money into the broker's pocket. It also guarantees that the lender will make as much interest off you as they can in the next three or so years. On second thought, why not get whacked in the head with a two-by-four when you're not looking. At least that bruise will heal faster than the prepayment penalty period expires on your loan.We've documented some of these home loan horror stories at www.equalhome.com.

So, it's too bad that we can't look at the interest rate alone to see the real bargains. There are three or four main levers of loan costs, and each has to be reviewed at the same time. If you're careful, though, you can find a few decent mortgage professionals to help. Plus, this may truly be a unique time to buy or refinance...just don't jump at the first thing that jumps your way. Comparison shop carefully or you could end up spending much more for that bargain interest rate than you ever bargained for.

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