Common Low Mortgage Rate Traps
Low mortgage rates are enticing. We all know that. But, what’s the catch? Or is there a catch? Read on to find out some of the most common rate traps in the mortgage business.
Typically, the lower the rate is, the more restrictions it will have. For example, you could save 5/100th of a percent on your rate by selecting a product with a 2.75% payout penalty (what’s a standard penalty?). The question then becomes, is the nominal difference in rate worth the risk of a potentially massive penalty? For some, yes. For most, no. Do your research and do what makes sense for you.
Oftentimes, a rate will only be obtainable by combining another product with it that you either don’t want or are not eligible for. This can be rather annoying if you’re just looking for a simple mortgage and nothing more. For example, some products require that you take an equally large credit line with it (For the record, we like credit lines, but not for everyone. More often than not, they’re a recipe for unnecessary spending and debt accumulation; therefore, they should be reserved for financially literate and responsible people – you know who you are).
Some rates have non-refundable application fees or obscure cancellation fees. We’ve also seen increased registration fees for certain products that would offset some of the upfront rate discounts. Make sure you read the fine print.
Oftentimes, a completion or funding date will be impossible to meet. For example, let’s assume it’s November 27th and a specific rate special requires that your deal completes by November 30th. Well, that’s basically impossible. This is a common occurrence in online advertising as the special is technically available, but realistically unattainable.
When rates change, all banks and brokers know about it. Typically, we’re privy to this information prior to the public. Accordingly, rates get updated on websites to display current offerings. There are, however, companies that tend to wait a couple of days to generate calls off the old rates. This is a reality of the business, is not patrolled, and therefore requires prudence when shopping. Nobody likes to inquire about a rate and immediately be told that’s it’s no longer available and that it just hasn’t been updated.
Here’s the bottom line. An increasingly large number of people are shopping for mortgages online, as they should be. This is the way the business has evolved and will continue to go. Competition has increased substantially, which has led to more product innovation. Innovation is great; however, it has fuelled more frustration than anything else because of the intricacy of some rates and the general lack of transparency that goes along with advertising them. It’s challenging enough for industry incumbents to stay on top of it and virtually impossible for consumers, which we hear about time and time again. Ultimately, consumers should feel empowered with the access they have to information and choice; however, it appears to be going the other way at times.
At the end of the day, be prudent when you’re shopping for a mortgage and be aware of these common traps. Ask questions and lots of them.