Now that rates have risen significantly since the lows we saw a mere 4-5 months ago, you are hearing some last ditch efforts by some companies to try and squeeze any last bit of refinances out of the market as possible. When you hear rates on the advertisements, they seem to still be at rock bottom and if you didn't pay attention, when you call, the rate you were exploring from the ad is nowhere near what you can get. Here are a couple of reasons for that:
- The term is much shorter than a 30-year and that fact was hidden in the ad somewhere and you didn't catch it.
- It sounded like they were promoting a 30-year fixed rate program, but it was actually an adjustable rate product with a 30-year amortization and the initial term is fixed at that low advertised rate.
- The rate quoted is for a loan scenario that does not match yours. For instance the rate advertised was for a purchase transaction with a 20% down payment and a credit score of 780 or above. All of these factors can impact a rate when you are asking for a quote.
- Lastly and most often the case, the rate you heard quoted is going to cost you a point or more which will be a cost, often significant, at closing. In this type of rate environment, it rarely makes sense for you to spend a fraction of or a multiple of a point to get a lower rate. Most of the time you just will not get a big enough bang for your buck. Paying points and the benefit for doing that is a very black and white calculation thus making your decision a fairly easy one. Bottom line is you know what the point(s) will cost you based upon your loan amount, you will know what type of discounted rate you can get by paying that point, so you will take your monthly savings achieved by having the lower rate and divide that into the cost of that lower rate. This will tell you, in months, at what point will you begin to benefit by paying that point. If your benefit begins in month 70, that is not worth the expenditure, especially if you won't be in the home that long! If you can begin to benefit in month 10, then every monthly payment you make after that month is a win and justifies you making that investment.
The surefire way to make sure of you getting what you are expecting to get is to look at your APR. (refer to my earlier article about this very thing) If the APR is more than just a fraction higher than the quoted rate, you will know that something is causing it and you need to look into the matter ASAP. If you are being pitched an ARM, your APR will be higher. If your 30-year fixed rate product comes with a couple of points to get the quoted rate, your APR will be higher. If the term of the loan quoted is much shorter than what you are looking for, the truth in lending form that shows you the APR will spell that out loud and clear for you.
I am constantly amazed at the number of call ins who are confused as to why the rates they are being quoted differ from the ads they hear all day long. There are many reasons for this and you need to do a bit of homework to know why.
One more way to help you manage your mortgage.