Consumers Helping Consumers

Last Minute Closing Table Surprise
G.K., Professor in Evanston, Illinois

My name is G.K. (name changed to initials by Equal Home Finance Bureau). I teach in the business program at an area university and consider myself knowledgeable about general financial topics. My husband and I found a home that was perfect for us. We met with a mortgage broker and together determined the type of loan that best fit our financing need. Throughout the process we thought the mortgage broker to be very knowledgeable and helpful. We had no idea this person could be as cruel as he was at the last minute at the closing table.

We had been communicating by phone and in person with the mortgage broker regarding our loan. We discussed various loan characteristics such as the right types of interest rates, the term of the loan, whether to lock or not lock the loan rate, and so on and so forth. I compared the interest rate to rates we had seen in the newspaper, and I felt that we seemed to be getting a deal about in line with average interest rates for the Midwest. My background in economics gave me confidence that our interest rate was a fair rate.

However, to our great dismay, at the closing, the mortgage broker surprised us with a "prepayment penalty." I inquired into the nature of the penalty and explained that I had thought we had discussed every aspect of the loan. My husband insisted that we had no notion of a prepayment penalty during any of our previous discussions. This prepayment penalty would force us to pay several thousand dollars to the lender if we refinanced within the next three years. Further, it also meant that we could not make additional payments to our mortgage if we wanted to save on interest during that period.

Our closing immediately began embroiled in a heated conversation right at the time we were going to take ownership of our new home. After several minutes of this, and our insistence that we had never committed to a prepayment penalty, the mortgage broker finally said, "Well, of course, there really isn't as long as you do any refinancing with us." What he meant was that he would pay for our prepayment penalty if we needed to refinance. My husband and I later presumed that the mortgage broker would simply price any future refinancing loans at a price high enough to cover this penalty, which only leads to a less attractive interest rate for us, and less likelihood of being able to benefit from any refinancing.

We had already made extensive plans for moving into our new home, and so we accepted the home loan the mortgage broker presented. We are still paying an interest rate that we feel is too high, and yet the savings from refinancing after paying a prepayment penalty may not be enough to make up for the penalty. We have been quoted new interest rates from the mortgage broker since then, but they seem way too high, higher than other companies have been quoting, not to mention our unwillingness to deal with him or his company. The entire incident has left a bad feeling for us, an incredibly humbling experience.

Equal Home Finance Bureau Comment: GK and her husband ran into an issue we have heard time and time again. Many mortgage brokers seem to understand that people's desire and anxiousness to move into a new home leaves an opportunity to make last minute adjustments to loans with last minute surprises. It is so unfortunate that such an exciting time as moving into a new home must be clouded with the horror stories of home financing issues. In this case, the mortgage broker would have made an extra commission from the lender of several hundred dollars or more. Far less than the additional costs that GK and her husband had to pay over the next three years.

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