Read the Fine Print

SAVE THOUSANDS OF DOLLARS ON YOUR MORTGAGE!!

OUR FEES ARE ONLY $395!!

These are ads that I have seen in the paper, heard on the radio, and shoveled out of my emailbox on the internet. How is it that adverstised mortgage lenders’ or brokers’ prices and rates are SO FAR under what those quoted by your friendly neighborhood mortgage broker (like me)?

As I have said before, all lenders ultimately get the money they loan from Wall Street. How can anyone who follows current business news from Wall Street feel that these same sort of people who are being led off in handcuffs for insider trading and other illegal schemes would give ANYONE a “deal”?

The devil, as always, is in the details. It isn’t just that most of these offers aren’t for everybody; it’s that anyone who is comparison shopping in preparation for one of the biggest financial obligations of their lives should understand the essential details of the loan packages they consider. Given that basic understanding, most borrowers will be able to recognize what is “shine-ola” and what isn’t.

For the first advertisement above ("Save thousands..."), the loan quoted was for a 3-year fixed adjustable rate mortgage with interest only payments. Loan fees (points), quoted at 2.625%, were buried in the fine print (These points alone would cost several thousand dollars). None of the closing costs, points included, were factored into the forecast savings, and the rate was compared to a 6% fixed rate mortgage! Of course it looked good with all these costs unaccounted for!

Buried deep in “the fine print” of the ad was a comparison of the same loan with “interest only” payments for the first 3 years, resulting in no reduction of principal for this loan as opposed to the fixed rate plan.

Also in the fine print was that the rate was fixed for only three years and that the rate would adjust (most likely upward) after those 3 years. This loan may be perfect for you, and is readily available from many sources (including your mortgage broker), but do read the fine print.

The second example given ("fees only $395") doesn’t really clarify that they are speaking of their fees only. Escrow, title insurance, appraisal, lender fees etc. are beyond this $395. Not quite what the implication was.

So, do your shopping, read the ads, listen to the radio, respond to one of the millions of e-mail spam sent out daily (not!). Just take time to completely understand the details!

Because anyone who believes that a too-good-to-be-true loan package is straightforward and simple must also believe that the Wall Street traders currently clogging New York's justice system must be innocent of wrongdoing.

---------------------------------------------------------------------------
Fixed Rate Mortgages for a conforming loan under $322,700 as of 11/20/03 (a.m.) are:

30 year fixed: 5.25% (APR 5.52%) payments are $1,781.96/mo.
15 year fixed: 4.75% (APR 5.21%) payments are $2,510.06/mo

(Rates quoted are for a 2-point loan. For zero-points, add a half-percent to rate)

Where Are We Headed?

The pundits and their prognostications seem about evenly divided over whether this particular economic turnaround is going to last. Harry Truman once remarked that he wanted a "one-handed" economist, by which he meant that whenever he asked about what was likely to happen with the economy, his economic advisors would reply "On the one hand.... but, on the other hand..."

So, what sort of investment has continued to appreciate throughout recessions and outperformed in good times?

Yup. Real estate. Specifically, California real estate.

Now is the time to think about buying that investment property or vacation home. There are many different ways to finance this type of transaction that may involve little or no cash out of your pocket.

Now is the time to anticipate your long-term investment needs. Don't wait until mortgage rates or property values head up beyond your reach, or for the economists to agree on which way things are headed...

Lenders are Ready To Deal!

Right. I have seen this headline many times in the past, and it has always been an advertising come-on. Still, something is different this time...

The truth of the matter about interest rates has always been that rates are what they are. In other words, the best lenders don't negotiate rates for any reason. These lenders have always priced their loans at the lowest rates and fees possible. They know that there are few, if any, competitors who can beat their rates and they have no reason to offer discounts.

But as November begins this appears to be changing. I am seeing a handful of lenders offering discounts in fees for purchase loans, impound accounts and lower LTV, or "loan-to-value" ratios (The ratio between the amount of loan and the value of the property expressed as a percentage. The LTV of a $60,000 loan on a $100,000 house is 60%).

Why are lenders changing? Because many of them geared up for the refinance boom, adding staff, facilities, infrastructure, etc., and the precipitous drop in mortgage refinance applications has left them carrying this increased overhead with no new purchase loans coming in. The discounted offers I've started seeing from lenders have been for home purchases, not refinances.

So, if you are in the market for a new-to-you home, now is the time to let us help you take advantage of industry discounts to cut a great deal!