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Low Mortgage Rates: Don’t Fall Prey to Lender Advertisements

Low Mortgage Rates

Every time I see an ad from a mortgage company, it’s all about their super low mortgage rates. I don’t understand their obsession with interest rates other than to grab your attention and pull you into their office if you’re in the market for a mortgage.

We can’t help but be intrigued by the shiny object, sort of like how I can’t help but click on every single Buzzfeed article I see about turning 30 (or this).

Are mortgage companies simply responding to people’s lack of understanding about mortgage products and their fixation on getting low mortgage rates or are mortgage companies actually the drivers of this irrational behavior by consumers?

The point is: don’t fall for those stupid ads. Read the fine print.

I just recently saw a mortgage ad flaunting a 3.25% interest rate. When I looked at it closer, that mortgage rate was for a 15-year mortgage and for borrowers with assumed credit scores of 720 or higher. If you can’t afford the higher monthly mortgage payment that come with shorter-term mortgages such as 15-year products, or if you don’t meet the assumed credit score threshold, then that 3.25% is completely unattainable for you.

But it got your attention, and it maybe even got you inside their office or on the phone with them.

What mortgage companies should be advertising is how they will help you find the right mortgage for your needs; and let me kick some knowledge to the masses, it’s not always the one with the lowest mortgage rate.

Let me give you an example:

Jane and her husband Paul just recently got married and have their first child on the way. They are currently renting an apartment in Chicago but want to move out to the suburbs where they can have more room, less noise, and a potentially nosy neighbor.

They decided that becoming first-time home buyers is the way to go and know that this home is just their starter home. They want to have a second child soon, so they figure they’ll need to move again in approximately three years to a larger home with another bedroom.

Jane and Paul talked to their mortgage broker and she presented them with two mortgage options for a $200,000 home loan:

  1. Loan A is a 30-year fixed at an interest rate of 4% and closing costs of $5,000.
  2. Loan B is a 30-year fixed at an interest rate of 4.5% and closing costs of $1,000.

Which loan should Jane and Paul choose?  Let’s take a closer look:

Loan A
Upfront Closing Costs: $5,000


Monthly Payments of $954.83 over 36 months


TOTAL: $39,373.88

Loan B
Upfront Closing Costs: $1,000


Monthly Payments of $1,103.37 over 36 months


TOTAL: $37,481.32

Assuming the rest of the loan features are the same for Loan A and Loan B (e.g., prepayment penalties, etc.), Loan B, which has a higher interest rate, results in nearly $2,000 in savings to Jane and Paul over the expected life of the loan.

In fact, Loan B might be the better option even if Jane and Paul stay in the home for at least 6 years.

So yes, getting a low mortgage rate is nice, but it’s for sure not the only thing to consider when shopping for a mortgage. It’s not even the most important factor, and a good mortgage calculator will tell you so.

Choosing the right loan for your needs takes giving some thought to what your needs are. Savvy mortgage shoppers take the time to assess where they are today, financially as well as in other ways, and where they want to be in a few years.

As with many things in life, we make decisions based on the best information available to us at the time and adjust as we go. When’s the last time you saw a mortgage company advertising that?

Now back to my Buzzfeed article.

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