Don't Be Fooled By Ridiculous Interest Rates!

I over heard an ad on the radio yesterday advertising an interest rate of 4.875% with an APR of 5.6% fixed for 30 years! I know this lender (don't worry no one local) and you would think in light of what has happened in the mortgage business that this practice would be completely "off limits" as I consider this completely unethical and goes against what I believe, practice and teach! So how can they offer 4.875% (5.6% APR) when rates as of yesterday were 5.75% on a 30 year fixed? Well I'm about to show you.

I looked at Boone County statistics yesterday and YTD (ending September 2007') the median purchase price of a home was $152,500. In order to get 4.875% with an APR of 5.6% the client would have to pay 2.875% in discount points (or $4,384.38) to the lender plus an additional $7,550.00 in closing costs!!!!!! That's $11,934.38 in total fees (excluding escrow) that your client would have to pay to get this rate. The funny thing about this is that people will actually pay these types of fees in order to say they have 4.875%!!! This is not financially responsible nor should you fall into this trap. Imagine what the fees would look like on a $320,000 home? Well why don't I show you. At 2.875% to the lender that's $9,200.00 in discount points plus an additional $15,900 in closing costs (excluding escrows) for a grand total of $25,100 in closing costs! And guess what people will do it.

Imagine if you had someone attempting to do this on a purchase? First the home would have to appraise an average of $18,500 above the purchase price or the buyer would have to invest on average $18,500 of his own money into the transaction before a single drip of equity is achieved. I would imagine that this lender does not do much purchase business but mostly refinances for people who are fixated on rate.

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Your Columbia Missouri Mortgage Broker