Even mortgage brokers get refinance offers touting low mortgage interest rates from mortgage companies! Recently, Ben Lucero, the owner of Indigo Mortgage, received a mortgage refinance flyer in the mail, touting a 1.75% interest rate for a cash-out refinance.
So he turned the flyer over and read this in the fine print: “a 10 year term, minimum FICO credit score of 760, 50% Loan to Value, and 3 discount points plus an underwriting fee of $795. To qualify you may have to use an FHA or a VA loan.”
So, let’s unpack what that means. First of all, most people don’t want a 10 year term on a refi (15, 20 or 30 years are more common).
Second, 3 discount points on an average loan size of $250K equals an extra $7,500 just in discount fees to get that 1.75% rate, plus another $795 that’s almost $8300 just in lender fees, not including title and escrow fees. That extra $8300 means your mortgage payment will include all that, so you’ll pay more each month. Also, most people do not sit on 50% equity.
The offers says an FHA or VA loan might be your only option because FHA and VA loans offer lower rates than Conventional loans. However, an FHA loan requires mortgage insurance, which may also add to the cost of the monthly payment, and not everyone is a veteran who can obtain a VA loan.
This type of refi offer is a total scam because the company just wants the borrower to call. Then they can do the bait and switch to much higher rates and high fees. They try to do a sales job on unknowing borrowers. It’s never about the consumer, it’s all about profits for these lenders.
This is why it’s so important to shop your mortgage loan or refi around and use a trusteed local lender like Indigo Mortgage. No bait and switch, just an honest proposal every time. After we’ve submitted our offer, we’ll help you compare offers to see what’s the best mortgage rate and deal, just give us a call.