"What is your rate?" This seems to be the first question out of the mouths of potential home buyers.
Shopping for the best interest rate possible has always been the consumer's primary objective when borrowing money. The challenge with this strategy is that there is much misleading information released on the subject by various media. Internet websites and email marketing, along with other media such as radio, television, and billboard advertising, have brought the importance of interest rates to the forfront of consumers' minds.
The problem for the consumer with this type of marketing is that it is designed to make the lender's phone ring. Often the advertiser offers a ridiculously low interest rate, with the intent of using the "bait-and-switch" technique once the client is reeled in. This is often done through short pricing. Short pricing is the term that is used when a lender offers an extremely attractive interest rate, but the rate is only locked-in for a very brief period of time.
The average consumer enters into a purchase contract to buy a home for at least 30 days. Pricing on an interest rate locked in for a 7-day period is of no use to most prosepctive buyers. It simply isn't enough time to complete the transaction. While the billboards or television advertisements boast traffic, the lock-in period is often not realistic in terms of providing enough time to negotiate a purchase contract and close the deal. Make sure when quoted a rate to ask the broker what the lock duration is. Make sure the time period allows enough time to complete the transaction.
Another marketing ploy that makes interest rates appear more attractive is geared around the manner in which fees are presented. All lenders are required by law by law to state the real cost of financing through the Annual Percentage Rate (APR) each time an interest rate is quoted in an advertisment. APR takes many of the fees associated with the loan into consideration, and it is usually listed in the fine print as a disclaimer.
The moral of this story is to do your homework. Consumers need to do their own research and shop around for the best "real" rate in town. Don't be fooled by flashy ads and extremely low interest rates. Ask the right questions and find a mortgage banker that works for you.