Every day, we get borrowers who call and say they have seen ads with mortgage interest rates to purchase or refi their home as low as 1.75%. They want to know if we can offer them that kind of low rate.

Our response is that we can offer any rate they want, but it’s a matter of how much they want to pay in order to buy down that rate, or if they’re willing to take an adjustable-rate mortgage.

Lenders who throw out crazy low rates like 1.75% are being dishonest about what they are offering. If borrowers look at the fine print, they will see that a 1.75% rate comes with a huge buy down of 3 to 4 discount points, a 10-year term, or an adjustable rate mortgage.

To illustrate, on a $250,000 mortgage loan, the cost to get that $1.75% rate will be $7,500 to $10,000 extra just to buy the lower rate, and that doesn’t include title fees and escrow funds they’ll need at closing.

When the dust settles, in that example, the borrower would be financing a total of about $15,000 to $20,000 to get that rate. If it’s a 10 year term, it will still come with a buy down; an adjustable rate is only good for 3-5 years before the interest rate adjusts upward.

There are all kinds of gimmicks that unscrupulous lenders use to get the borrower to call or send in a contact form from their website. Before you know it, you can be in a bad deal or find that the lender’s story changes if too many questions are asked. To avoid this trauma, shop that mortgage around and see what the true interest rate and costs should be.

Federal Funds Rate Difference Between the Rate and APR