The Mortgage Interest Rate Customer TRAP
The Trap Is Set, Here's What It Looks Like
Banks and loan officers know what the consumers want…that’s the problem.
For many people, the number one question regarding getting a mortgage is always “What’s the current interest rate?”
This is no secret to banks and loan officers, both of whom have a job to do, to get you to use their service to get a mortgage, so they can get paid. Interestingly enough, loan officers and banks will typically advertise attractive financing terms and even potential interest rates as their method of attracting customers, oftentimes without telling customers the full truth behind them.
That said, the trap is set; the conversation around the interest rate. They know that the majority of people don’t ask about things such as “fees” and “points,” but rather the “interest rate they’re gonna get,” and loan officers know they can say whatever they want, hence…the trap.
How Does The Trap Work?
Here’s how you identify the trap and how to avoid it
The trap is set right at the beginning, the moment you speak with a loan officer, but interestingly enough, it’s not the loan officer (or the “bank”) who sets the trap, it’s YOU who sets the trap!
“What is your interest rate?” you blindly yet confidently ask as though this were a valid part of obtaining a loan. The truth is, whatever interest rate you’re told at that moment will likely not be the interest rate you’re going to receive.
Even worse, you can even ask them to put it into writing and it won’t matter. The interest rate you spoke about is not something that can be provided to you even weeks after your initial conversation.
The loan officer (and “bank”) are well aware of this and it opens the door for a “fraudulent” conversation. It’s really up to the loan officer as to how honest they want to be or not to be. For example, the loan officer can quote 1 or even 2 percent less than what is being told on websites and media outlets which will obviously attract your attention.
Despite quoting this unicorn interest rate, the loan officer knows that there’s no way to call them out on this. Time will go by before the interest rate can be provided, and by then “the market has changed, it’s a different rate today than it was when we first spoke.”
THE TRAP HAS HAPPENED!
Now you’ve been working with this person for weeks and have provided plenty of sensitive information to that person and have had your credit score affected since your credit needs to be pulled as part of the process, all for what you thought was a true interest rate…which you will not actually get until you perform what is called the “Rate Lock.”
What Will My Interest Rate Be?
An excellent question that is answered well into the transaction
Earlier you may have read that asking what your interest rate will be is a dangerous proposition, but now that you’ve caught up as to why, we will revisit the same question, but from a different position.
Asking a loan officer what your interest rate will be is incorrect since you now know that it’s tied to something called a “Rate Lock.” The rate lock is the point of the loan transaction where you actually get the opportunity to select your interest rate, to a degree.
The rate lock occurs when you’re nearing the completion of what the bank needs to issue you the loan. It’s actually considered something called a “condition.” A condition is a bank-required request of information from you that must be completed. To complete your loan process, you will have to complete many conditions which the bank will communicate to you.
So then the question becomes “why don’t I just get a rate lock immediately?” The answer is simple; the rate lock has an expiration date, generally 30 days. So in other words, if you don’t complete what’s necessary to secure the loan within 30 days of getting your rate lock, then you will either need to pay a heavy fee to extend the rate lock (generally only a week or two), or, accept whatever the rates may be at that current time instead. This is why people will wait until they know they’re almost complete with the bank before locking their rate.
So earlier I mentioned that when you do a rate lock, you can “select your interest rate, to a degree.” What does that mean? When it is time for you to do your rate lock, your loan officer will tell you what the interest rate is so far for the day. You can choose to take that interest rate, or, you can wait until the next day to see if it gets better. Talk to your loan officer about this, sometimes it gets worse as days go by, and sometimes there is some news people are waiting on that will affect interest rates in the near future, but whatever the case may be, you have the ability to choose in that regard.
So What Is My First Conversation?
The true conversation to have with a loan officer
Your first conversation with a loan officer can be asking what the interest rate currently is, but now you know that it’s not really solid information, but more conversational. The real first conversation to have will include asking them what their bank fees are. Let the loan officer detail what type of bank fees they have. Ask them about any credits they can give back to you as part of the loan. You should be able to get back about $500 worth in fees by asking, and if they say no or that they do not, then you can consider asking other loan officers if they do.
Remember, you now know that you can’t control the interest rate conversation, but you can certainly try to get a little of it all back by asking for credits against the fees that you will be charged as part of the process.
There will be a variety of fees and the majority of banks will all charge the same fees, so ask about “origination points.” You want to avoid these if at all possible. During times when rates are high, it may be far more difficult to avoid these, but during times where rates are low, it could be easier.
There are a lot of factors here and there is no possibility to avoid paying fees in this case, but getting back at least $500 in your pocket will be a win against the bank, and believe me, a win against any bank, whether small or large, is a massive victory.
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