~ The Truth Behind Mortgage Advertising ~
The truth behind mortgage advertising is rather simple for those who take the time to understand the facts. Far too often, Mortgage Advertising is deceptive (and has been that way for decades). The reason why Mortgage Companies continue to engage in misleading advertising practices is simple...it works. Consumers continue to "hear what they want to hear" and constantly fall prey to Mortgage Companies who touch on all of the effective buzz words necessary to lure Consumers in under false pretenses.
We will never be able to "out-gun" these Big Banks, Credit Unions, and/or Mortgage Companies...as their advertising budgets are significant, and their Staff Attorneys are ready to defend every move the company makes. As an ethical Mortgage Professional, my purpose for composing this article is to help create a "silent revolution" of informed Consumers who will no longer allow themselves to be duped by clever Mortgage Advertising.
Please take 3-5 minutes to read this article, and comment/share as you desire. By sharing this article, you just might save someone you care about from making a huge mistake!
~ Identifying The Players Involved ~
The basic premise is that Mortgage Companies use Media to reach Consumers. Let's take a closer look at what that actually means:
Mortgage Companies can be defined as any company responsible for originating mortgage loans (or in this context, can even be "Lead Generation Companies" who advertise with the intent of selling "Consumer data" to Mortgage Companies). Examples of Mortgage Companies are Banks, Credit Unions, Mortgage Brokers, Direct Lenders, and "Inbound Call Center Mortgage Companies".
Media can be defined as various methods of reaching the Consumer. Examples of Media include (but are not limited to): commercials on Radio, Television, Online (Websites, Social Media, Email), Print (Newspaper, Magazine, Flyers), Snail Mail, Billboards, etc.
Consumers can be defined as Homebuyers (who do not have the ability and/or desire to pay "all cash" for the home they are purchasing) and/or Homeowners (who might benefit from a Mortgage Refinance). In other words...potential Mortgage Borrowers/Clients.
~ Every Advertisement Has 2 Parts ~
In order to be an informed consumer, it is imperative that we each learn to identify the 2 distinctly contradictory parts to any advertisement (regardless of the product/service being advertised, and regardless of the type of media used).
- HEADLINE - The portion of the advertisement designed to capture the attention of the target. Within this segment of the advertisement, the Mortgage Company will tout a benefits and/or selling points with the intention of motivating the Consumer to make a buying decision. If the headline had a voice, it would be YELLING to get your attention.
FINE PRINT - The portion of the advertisement that the Mortgage Company doesn't really want you to know about and/or understand...but is required to be disclosed under State and/or Federal Laws. The reason the Mortgage Company doesn't want you to hear/read this portion of the advertisement is due to the fact that the message is not attractive to the Consumer (but must be told). If the fine print had a voice, it would be WHISPERING just loud enough to be compliant, but not necessarily loud enough to be heard.
NOTE - Fine Print takes on various forms depending on the media used. For example:
- Radio Advertisements - the "fast talking voice" at the end (sometimes beginning) of the commercial
- Television Advertisements - despite the fact that the commercial is 30-60 seconds long, a paragraph of disclosure terms may "flash" on the screen for 1-2 seconds (often with font color conveniently similar to the background, in tiny and/or low-definition font)...in other words, even if you pause the commercial on your DVR, good luck reading this paragraph!
- Print Advertisements (Flyers, Snail Mail, Newspapers, Magazines) - smaller font (literally "fine print")
- Online (Websites, Social Media, Click-Bait, etc.) - oftentimes a hyperlink at the bottom of the advertisement...nowadays conveniently disguised in the same color font as the advertisement prompting you to "click for more details" in order to reveal the fine print on a separate page.
- NOTE - Fine Print takes on various forms depending on the media used. For example:
~ The 3 Most Common Mortgage Advertising Formats ~
In order to be an informed Consumer (and/or an informed Real Estate Professional advising his/her Clients), it is imperative that you understand the methodology used in these 3 different formats. In the spirit of nostalgia, I am using examples of how these formats may appear in a good ol' fashioned Newspaper (odds are, by the time some of you read this article, you we may no longer have newspapers in circulation). As stated above, regardless of the media used, the same 3 formats of Mortgage Advertising are used daily.
~ Format #1 ~
- HEADLINE - Low Interest Rates & Monthly Payments. Consumers tend to be very "monthly cash flow" conscious when making a big ticket purchase. Touting low Interest Rates & Monthly Payments is quite an effective Headline!
- FINE PRINT - In order to obtain those low Interest Rates & Monthly Payments, we now need to pay higher closing costs?
- SUMMARY - Not every Borrower wishes to pay extra money towards Closing Costs. That said, when they fall for this type of headline, the reality of the quote is often realized far too late in the process to switch Lenders (which rewards the "ethically challenged" Lender by obtaining a Client under false pretenses).
~ Format #2 ~
- HEADLINE - Low Closing Costs (a penny saved is a penny earned...who doesn't want to save money in acquisition costs?). Low cost headlines run rampant through many different industries because Consumers never want to pay full price for their goods/services. Talk about an effective Headline!
- FINE PRINT - Wait a moment, they did it again. In order to obtain those low Closing Costs, we now need to pay a higher than market Interest Rate (and thus increase our monthly payments)?
- SUMMARY - Suddenly this deal isn't quite as appealing as the HEADLINE made it sound. In fact, Format #2 is the polar-opposite of Format #1 (they simply switched the HEADLINE and FINE PRINT between formats)! By the way folks, remember the golden rule of economics...there is no free lunch! You cannot eliminate the costs associated with the creation of a mortgage loan. All of the "cooks in the kitchen" (Escrow, Title, Appraiser, County Recorder, etc.) will still get paid for the work they have done...the question is "who pays these vendors?". By selecting a higher than market Interest Rate, the Lender generates a "Lender Rebate" which they can use to "credit" some/all of the Closing Costs on behalf of the Consumer...but the Consumer pays a higher interest rate along the way in exchange. Again, this option may be very attractive to specific Borrowers/Consumers based on their needs, but it remains important to know the full terms when making a buying decision.
To learn specific information about Monthly Mortgage Payments and total Funds to Close (which include Closing Costs), CLICK HERE
~ Format #3 ~
Pay extra attention to this one! As Mortgage Rates rise, this format will always return to the market!
- HEADLINE - Low Interest Rates, Low Monthly Payments, AND Low Closing Costs!?!? My goodness, we must have discovered "The Magic Bank" who is giving away the farm! Folks, there is no Magic Bank!
- FINE PRINT - The loan program offering these terms is NOT a 30 Year Fixed Mortgage.
SUMMARY - Please do not misinterpret my warnings in this article...a 30 Year Fixed Mortgage is not necessarily the best mortgage program for every Consumer at any given time. In other words, non-30 Year Fixed Mortgages may indeed be better options. That said, if you truly want to make an informed decision as a Consumer, it is crucial that you make an "apples-to-apples comparison" of program terms.
- EXAMPLE - If you are walking away from Lender #1 (who is offering you a 30 Year Fixed Mortgage) in favor of Lender #2 (who is offering you a different program), and you are citing that Lender #2 gave you a "better deal", you are in danger of being duped by this format of advertising (and you might be unfairly/unjustifiably dismissing Lender #1 in the process, while potentially getting a worst deal than Lender #1 would've provided if you matched the SAME PROGRAM between Lenders).
Now that you have read this article, you really should also read The Truth Behind Mortgage Quotes
(you'll be amazed at how Lenders can manipulate numbers once we look behind the curtain at wholesale rate sheets!)
~ "Loan Amounts" Matter Too! ~
Conforming Loan Amount limits vary among different counties across the country (and change approximately once every 12-18 months). As an example, the conforming loan limits (for a 1 unit property in San Diego County as of 2018) are as follows:
- CONFORMING - Loan amount up to $453,100
- HIGH BALANCE CONFORMING - Loan Amounts from $453,101 - $649,750
- JUMBO (NON-CONFORMING) - Loan amounts of $649,751 and above
Please note that pricing (rates/fees) and approval guidelines will often vary between the 3 above Loan Amount categories.
~ Summary ~
In summary, whether you are a Homebuyer, Homeowner, Real Estate Professional, and/or Financial/Legal Professional, in order to make informed decisions about the single largest debt an Individual/Couple may ever acquire, it is imperative that you are all aware of The Truth Behind Mortgage Advertising.