Debt Free

You hear some variation of this mortgage ad every day. In fact you’re likely to hear dozens of them, depending on weather you listen to XM/Sirrius or regular, old radio as you drive to work. Can they possibly be true? Can you get a 2.9% mortgage, make no payments for a year, and PAY NO CLOSING COSTS? Fat chance, bucko. Those mortgage companies aren’t in this game for fun, you know. Everybody on the mortgage gravy train gets paid at one of the stops along the way, maybe more. Nothing wrong with that. A mortgage company provides a valuable service and they should be paid for it. You should know what you are really getting when you go in for a mortgage, however, and not be seduced by some slick mortgage ad.

Should you grab the cell phone, pull over for safety, and call that number right now, just like the ad says, even if you don’t really need a new mortgage? Probably not, but you should see what those catchy phrases really mean, so you can decipher what’s going on when you are going for your next mortgage.

The one that really gets me is the “No payments for a year” or it’s cousin, the “Vacation Mortgage”. What they fail to mention is that you may be out of the payment business for a year, but your mortgage interest isn’t on the same vacation plan. That’s right; it’ll accrue interest, just as it always does. The difference is that you get to pay interest for 31 years now, instead of 30 years. Typically, those 12 payments you missed are just added to your loan balance as well, where you can pay interest on them, too.

If you’re really lucky, you can get one of these bad deals at the same interest rate as a 30 year fixed rate mortgage, but don’t count on it. These types of loans are usually a few tenths higher. Talk about kicking you when you’re down. You’ll pay more initially and for the long term. You’ll get the thrill of paying for that mortgage “vacation” for much longer than that ill advised cruise you put on your Visa card a couple of years ago. So if you do that, and then invest the cash, as they suggest in the ad, you’d better get a hefty return or you’ll be going backwards, not the financial direction your supposed to be traveling.

What about the claim you’ll hear bandied about of “Mortgage rates have never been lower” Is it true? Well, that’s an easy one to check. There are literally hundreds of lenders where you can check what they are offering for various types of mortgages on any given day. A great resource is bankrate.com. You can go to the various financial websites, such as MSN Money or Yahoo Finance and see what the various financial indices are, and their histories. You’ll be able to tell if mortgage rates are, in fact, at their lowest rates in years, like the ads claim. If they’re not, you know those behind the ad really only care about your money vis-à-vis it becoming their money, not for your financial well being.

What about the old “We have no commission loan officers” There are so many ways around this one. Although you may be dealing with a reputable company that pays its mortgage officers on salary, that alone doesn’t guarantee impartiality on the part of the loan officer. There are many ways to offer incentive pay that aren’t necessarily called commission. Have you ever heard of a bonus? How about a company car if you keep your closed loans above a certain amount? In point of fact, a loan officer paid on commission is often more likely to bring you a loan you like. After all, they won’t get paid until your loan closes, so they are quite likely to make sure it does. If they’re on salary, they get the check every two weeks, no matter what.

What you really want to find is a reputable mortgage company that cares about its customers and gets a steady stream of referral business. When all is said and done, if they have consistently made your neighbors and others in your community happy, chances are they’ll do the same for you as well. Oh, and you should run when they start talking about a “4% Fixed Payment Loan”. That isn’t the same as a 4% fixed rate loan. You can’t really believe you’re getting a 4%, 15 or 30-year fixed rate mortgage, can you? They can keep the payment the same and vary the interest rate, every month in some cases. You want to be sure you’re comparing apples to apples, or 15 year fixed rate mortgages to other 15 year fixed rate mortgages, for example.

Now, turn on your radio again, and forget those stupid ads.