We have all heard it before...the horror stories of a closing gone wrong. "The loan officer told me that I was getting a fixed rate," or... the rate that was promised which was "so much lower than everyone else" was NOT what they received at closing." It is sad to see that in this business, that mortgage professionals are being labeled the same as "used car salesman" (yuck!) This "bait and switch technique" is VERY deceptive (not to mention illegal) practice among loan officers. These originators feel that they can quote a low rate to reel the customer in and when they find out otherwise, it is too late for the customer to change their mind without endearing a major heart-ship, so to avoid that, the borrowers signs the loan documents.
Some loan officers are so eager to get the next loan (especially during slow times) that they will promise the customer the impossible. I know this because I am very savvy on what is going on in the industry that when a customer calls saying they are being quoted a rate that is much as a 1.00 percent lower than my base rate, I start asking the borrower a few questions, such as pre-payment penalties, points, lender fees, and APR. You see, rate is only ONE factor into the equation. When you see a wide "spread" between the rate and APR, it might appear that you are getting the best rate in town, but actuality, you are paying a lot UPFRONT in finance charges. Often times these charges end up costing the borrower more money in the long run if they don't stay in the mortgage for at least 5 years. That is why its important for borrowers to ask more questions than just, "what is your lowest rate." Some situations may look better to pay more fees to take a better rate, other times its better to take the higher rate, every borrower (and situation) is unique. Borrowers need to educate themselves and ask the questions such as fees charged in the loan that don't make sense like mulitple lender charges. It is VERY important when comparing Good Faith Estimates against competiting lenders to ensure that the borrower is comparing apples to apples. An ARM with a pre-payment penalty will have a more favorable rate, but what will lie ahead for the borrower a few years down the road? My advice: do your homework!!!
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