I want to share a story with you. It fits in perfectly with the current market and the outrageous number of homeowners who are facing the reality of adjusting mortgage rates and increasing payment.
Back in May 2005, I had a customer referred to me by another customer. He was a first time homebuyer and going through the mortgage process for the first time. We sat down together and discussed mortgage financing and what type of mortgage would be the best fit for his situation. I set up a mortgage option for him offering him a 30-year fixed mortgage at 6.125%. It was my best recommendation,as he was planning on staying in this home for at least the next 10-years. We discussed ARM's and how it wasn't really the best option because he would have to refinance and loose equity when he was going to be staying in the house.
He rate shopped me, which is okay, he needed to explore his options and I was understanding of that. He ended up going with a mortgage broker who, he told me, offered him a better rate. I tried to discuss with him more information to make sure this new loan was a good fit, but he was focused on the lowest rate and couldn't get past it.
Fast forward to May 2007, the same customer of mine that had previously referred this first-time buyer called me. "Leah...Andy needs your help". He told me how he was put in an ARM back in 2005 and now it was adjusting. So, we spoke again. He explained to me how he was very upset that his payment was adjusting and he didn't know what to do. After some research I found out that he was put in a 2-year adjustable ARM. (Note, he was in a rate at 5.875%). To boot, he had a prepayment penalty on the loan. So, here we are 2 years later again looking at the best loan options.
You may think it ends here...nope, there's more!
I went through the mortgage process with the customer again, quoted another 30-year fixed rate on the refinance. He now understands the importance of a fixed rate mortgage. We went over a good faith estimate and the new mortgage rate. He was SO excited and we set up an appointment to do the mortgage paperwork. Here's where it gets sticky. In the meantime, he had called his first mortgage broker. After weeks of not receiving a call back and speaking with me, his first mortgage broker finally called back.
The customer called me prior to our appointment and the conversation went like this. "Leah, the other mortgage company is offering me a rate that is .25% lower..." I didn't give up on him. We discussed closing costs and how a rate doesn't necessarily make up the whole picture. It didn't matter. He was again sold on the rate. So, okay, the customer is always right. I told him to do what was best for him and that I would be here if he had any questions or needed anything.
Fast forward to this week. The customer called saying "You don't know how red my face is right now..." Yes, you guessed it, that pretty mortgage he was quoted changed right before closing and now he was suppose to close bringing $3000 into closing (something he wasn't expecting in the beginning). Believe it or not, he now understands the mortgage process!! We are working now to put him into the right loan and I have a customer for life.
I tell you this story not as a mortgage lender looking for a pat on the back, but rather to show how easy it is to get sucked into the "best rate" philosophy. It is crucial to work with a mortgage consultant who has your best interests in mind and tells you the whole story! Be oh so careful as you rate shop. This customer will end up almost a full point higher on his interest rate than he would have two years ago, plus will loose equity in the refinance between costs and his prepayment penalty...it's a costly price to pay for a lesson learned.
Are you looking for the best rate possible for a home in Tampa or Hillsborough County? Talk to a professional about the best loan for your long term financial goals before you go with the "best rate".