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Now browsing: Hometown News > Business Columns > Daniel Poulos

Daniel Poulos
This Week | Archive

Mortgage lies exposed
Rating: 4.19 / 5 (367 votes)  
Posted: 2006 Sep 29 - 02:53

It's no secret that the mortgage market has been shrinking as of late predominantly due to rising rates and a cooling housing market.

Lenders competing for their piece of the smaller pie have really been pulling out the stops when it comes to misleading and often blatantly fraudulent advertising. Some of the most prevalent tactics involve the "1 percent mortgage" and the "no closing cost loan."

Open any newspaper or real estate magazine and see how many pages you have to turn before you see an ad touting: cut your payments in half with our 1 percent mortgage.

I get similar ads in my mailbox every day. Who wouldn't want to reduce their mortgage payment by up to 50 percent?

Fact is, that's not the part of the come-on that's a lie. In the short run, you really can cut your payments in half. In the long run, if you are not prepared for how and when your payments change you could find your home available on the courthouse steps. Here's the cold hard fact:

There is no such thing as a mortgage loan with a rate of 1 percent.

"But Danny, the nice loan officer told me."

I don't care what he told you. If he led you to believe the rate is 1 percent he is either a liar and a crook or a mortgage salesman who doesn't know any better himself. Speak to a professional, get the facts and make an educated decision.

Turn the page of that mortgage ad and you'll probably find one for no closing costs.You may also file this under no such thing.

Next time someone presents you with the opportunity to close a loan with "no closing costs" ask them how much lower the rate would be if you paid your own loan expenses. You'll be shocked at the difference. There are always closing costs, but the lender can often pay for them with your money by jacking up the yield on your loan. A professional can calculate the best combination of yield and costs to save you the most money.

Finally, if you have ever been counseled to compare loans by asking for the annual percentage rate, you are following the advice of the board of governors of the federal reserve system.

Problem is, the formula only works if you plan on paying on the mortgage for the entire term. How many people do you know who plan on making 30 years of mortgage payments on their current residence? Truth is APR may be one of the worst ways of comparing loan products.

Consider this example: if you were to borrow $350,000 at 7 percent with no points, the APR is the same as borrowing at 6.75 percent and raising your loan costs by $8,750. Is it worth it? Ask a professional.

Your home mortgage is one of the most important financial decisions in your life. Make sure it doesn't end up being a costly mistake.

Daniel J. Poulos is the president of Elite Lending, at 1232 W. Indiantown Rd., Jupiter in the Shoppes of Jupiter Creek. For additional information and assistance with any home or commercial financing, call (561) 745-5575 or in Port St. Lucie, (772) 335-5556 at 1814 SE Port St. Lucie Blvd., Port St. Lucie. Also please visit us at www.EliteLending.biz.

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