Kathy,

I went into my computer and did a quick mortgage calculation.  This is what I came up with. 

This is just a very rough estimate, but if I had a client with 750+ credit putting a decent amount down.  on a 30 year fixed loan the rate was 6.25% par.  That means that this is without any profit built into the loan for the mortgage company. 

Its sounds like this advertisment is some type of mortgage gimmick. 

Its unfortunate, but some in our industry feel its necessary to advertise this way to attract consumers. 

To my knowledge, not on a fixed interest rate Kathy.  There are 'Pick Your Payment', 'Pay Option Arms', & an abundance of advertisements for short-term low payment options available.  4.75%?  Freaking A, either they are paying discount points out the arse (which you can only pay so many) to get that or their marketing geniuses.  To be a marketing genius takes nothing more than to advertise what doesn't exist.  What you laid out here Kathy, does not exist to my knowledge.  I could be wrong, but I am more than likely not.  That lender has no credentials or follow through, if I were to make a prediction...

I'd have to agree with Gary there (even though I'm no LO) because lately, all my buyers had decent credit, some money down (one had 20%, one had 15% and one had 10%) and did a 30 year fixed....with an interest rate between 6.15 and 6.5. I suppose it's like advertising something that isn't true...like prices are going up so hurry now.

Gary is correct.  Fixed rate on a 30 year mortagage, Par rate (not paying the mortgage company a dime) is 6.25%.

Gary-

Thank you very much.  I am not a Loan Officer, but this is just about what I told them. I am so glad that you have validated what I believed to be correct, and it is indeed confusing for the consumer......in fact One of the Largest Lenders has just this week stated in a Press Release that they will be teaming up with Local Agents at Open Houses because of this Interest Rate Drop.  They further stated their phone has increased 40%....yes, but the consumer will not be getting this Rate :)

Jason- Thank you, as a Lender, with nothing to gain, you have stated the plain truth.  I will be taking this to my client in a little while to show them what Lenders say about this :) :) And the way you wrote your opinion they will totally understand :) :)  Thanks.

Sally- Your contribution is valuable as an Agent that has seen the types of Loans Borrowers with Good Credit are getting......my clients have good credit also.  Thank you :)

Kathy, you need to know how mortgages are "priced." Everything is based on the FNMA bond, which is currently 6% trading at a discount to yield a little higher than 6% interest. If a mortgage company could make a loan at this "price" it would have no profit in it to pay their overhead or take a risk on a change in the market between funding and sale of the loan, not to mention any commission to the Loan Officer.

It is our fault (mortgage industry) that people don't understand how mortgages are priced. The confusion allows for higher prices over-all.

But now you can see that the 4.75% is impossible. A "teaser" rate maybe, or a short-term fixed on an ARM with high points, or maybe a negetive amortization loan (where the principal balance grows by the amount of the unpaid interest - the difference between the real rate and the 4.75% starter rate).

Get a good mortgage broker to refer your clients to that can "educate" them about the mortgage market.

Bill Roberts

Question: Does it matter if this is a re-fi......, and if they want all the costs put into the loan?

Bill-

Your comments are probably written in Mortgage simplicity...but are still a little confusing for the general consumer, except for the 3rd paragraph.  I did refer them to a Good Mortgage Broker....but when I saw the ad this morning, well you know the power of a Mother-in-Law versus an unknown Lender :) :) 

That is why I wrote this....I want to show them, in English, Simple consumer English, what Lenders have to say when the $$$$ is not involved in the answer.

Kathy,

Some minor varibles can change the rate a little and that depends on factors tha involve adding more risk to the loan, but overall No the rate should be very similiar to what I stated above. 

Lately, I have seen some big box lenders using some very borderline marketing tactics.  They must be in some major troubles if they are stooping to confusing the public more about interest rates.   

Gary,

I have never met you, don't know what company you are with....but I really like what you have to say.  It is easy to understand, and you have no financial stake in your answer :) :) Thank you very much.....

Now to the Big Box Lender.....they are indeed in trouble (from what I have heard) and it is a real shame to mislead the Public/Consumer into thinking they can get these loans.  I even felt bad with my client...how do you nicely say the Mother-in-Law is wrong again :) :) And if it weren't for Deceptive Marketing we as Agents wouldn't be in this position.

Kathy, it is just to get the phone to ring, just like Realtors that advertise they will buy your home if it doesn't sell. When the phone rings they get the fine print.

Missy-

Exactly my point.......as an Agent I told my client the Truth, and the Lender I recommended did as well.  Unfortunately, that Deceptive Advertising is costing our clients, and they don't realize it.  The Mother-in-Laws of this country call, and convince the children that we are wrong :(  

"When the phone rings they get the fine print."  and they get the real Interest Rate from a fast talking Salesman..... 

Thank you for helping all our clients understand better :) :)

When the Fed applied the Fed Funds Rate Cut on September 18th, to lower the target to 4.75%, this action only affected two things mortgage: 

1. The Prime Rate - rates on 2nds like Home Equity Lines of Credit (HELOCs).

2. Indexes to which adjustable rate mortgages are tied - Like the LIBOR, index. This was one of the true intentions of the Fed, to help home owners' whose loans are about to re-adjust by slightly lowering their new adjustable rate payment.

Rates on the standard 30 Year Fixed Rate Mortgage and the 15 Year Fixed Rate Mortgage on the other hand are affected by the mortgage-backed securities market which is in turn affected by changes in the greater economy. These rates are affected by how the greater economy has interpreted the actions of the Fed.

For example, if you read my Weekly Market Update for the week following the Rate Cut you'll notice that rates on the 30-Year & 15-Year went up! Why? Because the actions of the Fed to cut the Fed Funds Rate raised inflationary concerns which to the end-investor in the mortgage-backed securities market means now they must charge a slightly higher yield premium (a slightly higher interest rate). 

So can I get a 4.75% on a 30-Year Fixed? I'm sorry it's just not plausible in today's market. The only way to get a rate that low is to obtain a Hybrid Option Arm as my friend Jason Sardi commented above. But now that you're armed with the knowledge on how the actions of the Fed really work and how the market for traditional fixed rate mortgages works really responds, you'll know not to fall for any misleading advertisements or disingenuous promises of a REALLY low fixed rate. 

Hi Kat, Good Job. You exposed the question and got some great answers. All the good mortgage brokers distance themselves from ads like this. So do good law firms distance themselves from the ambulance chasers. I wish we could guide everyone and be succinct about it but with all the conflicting messages, some consumers still want to believe that the good ole American Pie is till baked in a small country kitchen. One pie at a time. For those of us that have had a piece of that pie, it is hard to surrender the beautiful dream for the new reality that is often embraced by disception.

No es verdadero ni justo dicir que uno puede obtener un interes tan bajo y fijo! Ahorita le voy a decir por que.  

Cuando el fed aplicó la cortada de la tarifa de fondos de septiembre el 18, para bajar la blanco a 4.75%, esta acción afectó solamente hipoteca de dos cosas: 

1. La tasa preferencial - las tarifas en 2nds tienen gusto de las líneas caseras de la equidad del crédito (HELOCs).

2. Índices a los cuales se atan las hipotecas de tarifa ajustable - como el LIBOR, índice. Éste era una de las intenciones verdaderas del fed, de ayudar a los dueños caseros que préstamos son alrededor reajustar levemente bajando su nuevo pago ajustable de la tarifa.

Las tarifas en el estándar hipoteca de tarifa fija de 30 años y la hipoteca de tarifa fija de 15 años por otra parte son afectadas por el mercado de seguridades (mortgage-backed securities) que alternadamente es afectado por los cambios en la mayor economía. Estas tarifas son afectadas por cómo la mayor economía ha interpretado las acciones del fed.

¡Por ejemplo, si usted leyó mi actualización semanal del mercado para la semana que seguía la tarifa le cortó notará que fueron las tarifas en el 30 años y el 15 años para arriba! ¿Por qué? Porque las acciones del fed para cortar la tarifa de fondos del fed levantaron las preocupaciones inflacionistas que al extremo-inversionista en los medios del mercado de seguridades ahora deben cargar un levemente más alto rinden el premio (un tipo de interés levemente más alto). 

¿Tan puedo conseguir 4.75% en 30 años fijados? Estoy apesadumbrado que no es verdadero ni es justo en mercado de hoy. La única manera de conseguir una tarifa tan baja es obtener un brazo híbrido de la opción como comentó mi amigo Jason Sardi arriba. Pero ahora que le arman con el conocimiento en cómo las acciones del trabajo del fed realmente y cómo el mercado para las hipotecas de tarifa fija tradicionales trabaja realmente responde, usted sabrá para no caerse para cualesquiera anuncios engañosos o promesa falsa de una tarifa fija que dicen que es REALMENTE baja. 

Kathy, another deception. I would think that the public has got to be sick of it by now. I know I am. At some point the almighty dollar has to butt heads with integrity and I'm hoping integrity wins.

Ricardo-thank you very much for both the english and spanish answer....this can  not only help the consumer....but Agents as well.  Gary, Jason, and you made it pretty easy to understand.  And the best part is you are all competitors, in different areas......

William- I just love your descriptive analogy.....Thank you, your opinion is always highly respected.

Gena-Yep, that  was my thought exactly, I too hope Integrity wins :) :)

Kathy...I know how it feels to be put in the position of trying to back what you say without dissing the other guy...just copy this page. That should do it! Great post!

I have been disgusted with the whole lending advertising system for a long time. I wish there was a way to regulate it. The problem is that it is ALREADY so highly regulated that we have stacks of regulation-mandated paperwork that no one understands and therefore everyone ignores. And none of it kicks in, even if a buyer can understand it, until the buyer is "in the door" and getting a good faith estimate. What we need is some truth in advertising regulation.

Comment about the good lenders distancing themselves from this is correct, but if it's on yahoo or late night TV, it's going to confuse people.

Joan- I did in fact print this and the comments and gave it to my client.  She told me she was very impressed and she called the Mother and told her about this information.  I think all the comments here really helped........especially since they are from all over, and unbiased :) :)

Ann- You and me both.... I wrote an article on Lenders about a year ago for my newsletter and exposed many of the shady practices.  Every single one of my clients know that I will not recommend any Lender that I do not know as I don't trust them :) :)  Active Rain has allowed me to learn more of the practices, and who is fake, and who isn't....at least as much as I trust what they say :) :)

And yes, that flashing 4.75% on Yahoo this morning was a little hard to counter.....and Countrywide's Press release  made it seem like the consumer was going to get this Interest Rate :(  Very confusing to people....therefore my post so I could have other Lenders, and agents give their opinion. It worked for that client, and hopefully will for others.

Hi Kathy,
It really is confusing to the general public (and me) when this type of ad is put out.  You know how Publisher's Clearing House  had to add the statement "Purchases do not increase your chances of winning", I think some type of statement needs to accompany all mortgage rate ads.  As always Kathy, you brought an interesting post which sought the truth and I think you definitely got it.

Cynthia- Thanks and I like your idea....wouldn't that put a crinkle in all Misleading Advertising :) :)