Many of my clients are very tech savvy with the Googler, understand the value of comparison shopping, and obviously want to get a second opinion on a decision as important as their mortgage.
Being informed and not being taken advantage of during the loan process is very important. Getting 4,5, or 10 opinions and quotes on your mortgage is time consuming, will do little to actually save you money, and can complicate the situation. Additionally, rates change daily and sometimes multiple times in a day. If you are like most of my clients and do your “rate shopping” throughout the week, you are not getting a fair evaluation of rates between various lenders. You may feel that the 3rd bank that you contacted during your week long search had the best rate to offer. The truth may be that bank #3 was the bank you called on a day that rates dropped a bit. Unless all rates are obtained from all banks you are shopping on the same day… you are not making a fair comparison.
The dirty little secret is that in today’s mortgage markets, the rates from bank ‘A’, to Credit Union ’B', to broker ‘C’ are going to be virtually identical. The days of niche products and pricing, bank portfolio lending, and hybrid interest only products are a thing of the past.
Two years ago it was important to do as much loan shopping as possible. Every bank, loan broker, and credit union had their own speciality product. If you searched long enough you may have been able to find a rate 1% lower than the competition, or loan terms that were much more favorable to your individual scenario.
However, here and now in late 2009, there are basically two mortgage products available to the average consumer… a 30 year fixed mortgage, and a 5 year interest only mortgage.
Each bank has a different method for advertising their rates on these two products. Some lenders, like myself, quote our rates with no points or hidden fees. Many banks, and an overwhelming majority of Brokers, quote their rates with 1% point built into the transaction (a point is a fee charged up front to get you a lower rate, and designed so that the bank or broker can advertise a more appealing loan). Some lenders, being aware that consumers are becoming more informed, advertise their ‘low’ rates with ‘no’ points - but charge you thousands of dollars of junk fees on the back end to substitute for the 1% point they should have quoted up front.
It’s because of this manipulation of “points”, “fees”, and quoting techniques that Lender “A” can make their rate appear so much more attractive (or lower) than Lender “B”.
Just recently I lost two deals to other lenders who I know, for a fact, were lying to the client. If the going rate at no points for a 30 year fixed rate mortgage is at 5.50% with Bank ‘A’, there is NO chance you can get that same mortgage, at no points and the same fee structure at Bank ‘B’ across the street for 4.75%.
30 year fixed rate mortgages are based on publicly traded mortgage backed securities and demand for treasury instruments. At this point in time, all banks and brokers are working from the same pool of money in the secondary mortgage markets. In my example above, there is no way Lender “B” could afford to extend the significantly lower rate of 4.75% without charging a “point” (1% of the loan amount in fees), or some other garbage fees used to obtain this lower rate.
I have seen it to many times to count where a client gets wrapped up on finding some amazing deal. An unethical lender promises them a rate that cannot be delivered or hides the fees associated with the obtaining this lower rate. The consumer signs on to do business with the unethical lender and usually finds out that they have been lied to when it is to late in the purchase transaction to start over with another lender. Sometimes the presentation from the lender of the available rate and fees is simply fraud. However, many times it is a matter of consumers only hearing what they want to.
Many consumers get fixated on the rate and jump to apply with the lender who has the lowest “rate”. What that consumer has failed to do is verify the cost of obtaining that rate. Then, at the closing table, the borrower is shocked and appalled when they realize their lender has charged them several thousand dollars in points or fees in order to obtain the low rate they fell in love with.
The morals of the story are that a well informed consumer is great, and over-zealous consumer is dangerous. Make sure to compare all three components of the mortgage before you choose – compare Rates, Points, and Fees. Most importantly, you can shop for rates until you are blue in the face… all you really have to do is pick a lender you trust that came with good references and the rate will take care of itself.
As always, if you need information on starting a new loan for the purchase or refinance of your home, contact me at trustyourlender@gmail.com
