Chicago,IL – Dave Weiss of Serious Real Estate – Chicago Real Estate Marketing and Sales had an interesting post on Why Advertised Mortgage Rates are Never Right. This is one of the dirty truths in the mortgage business. Mortgage ads are everywhere, on the Internet, spamming your email, in newspapers, billboards, radio – everywhere. These ads either show an unbelievably low interest rate, or they claim that they will get you the best mortgage rates. Like Dave said, they are almost always wrong. Mortgage rates quoted in newspapers and news articles are just as likely to be wrong. Why is this? There are several reasons:

1. When mortgage rates are given in news articles they are usually linked to some kind of national survey of what lenders are charging, like the Freddie Mac weekly mortgage rate survey. Here the problem is a matter of comparing apples to oranges. The survey tries to standardize the rates and fees across the nation. The Chicago area is one of the few places where we don’t customarily charge a 1 point origination fee, so the rates here will be slightly different than the survey rates which have more fees built in.
2. Everyone, whether they are a mortgage banker a mortgage broker or a bank, fund their mortgages through the same sources. Because of this mortgage rates should be very close from one lender to another. The purpose of advertised rates is to get the phone to ring and it quickly becomes a game of who can lie the most convincingly. I’ll cover this more.
3. Mortgages are priced-out based on a whole range of factors, so a true mortgage rate quote has to take into account your specific situation and your individual needs. There is no such thing as a one-size-fits-all mortgage. I’ll cover this in depth, too.

In this post I’ll look at the darker side of the issue, why companies advertise rates that are wrong from the beginning. This is way too common. The truth is that all mortgage lenders are pulling money from the same sources, Fannie Mae and Freddie Mac for conventional loans, and various Wall Street syndicators for Jumbo and niche product loans. This means that all mortgage lenders have close to the same cost of money. There are differences in business models (this will be another post) but the net costs of processing and funding a loan is also similar with all lenders. In the real world rates should be close to the same from one company to the next. Different lenders go in and out of the market, but it’s rare for a lender to be more than 1/8 or ¼ of a point better than the over-all market.

So how do the lenders in the newspaper offer rates that are way below the current market rates? Some of it comes to twisting the facts, and some of it is out right lying. If a mortgage lender is relying on advertising to bring in prospects, he needs to have a reason for a potential buyer to call in or click on his ad instead of any of the other places they could get a loan. Because the ads all focus on rate, the one with the lowest posted rate will get the most phone calls. So what do they do when their rates are no better than anyone else’s? They increase their fees to make up for their lower rates, they quote lock periods too short to close the loan, they include pre-payment penalties, they price out adjustable rate mortgages and call them fixed rates. And they lie.

Ads in the newspaper are placed days ahead of time. To make the Sunday Chicago Tribune, an ad has to be placed on Wednesday. The mortgage market changes every day. A rate quoted on Wednesday is obsolete and ancient history by the time a potential home buyer sees it on Sunday. If the market has improved in that time, the rate might be in the ball park. If the market stays the same or gets worse, then the lender says that the rates have changed. But now he has a buyer on the phone, and he has a chance to sell them something. This is the used car salesman model of mortgage broker (though big banks have been known to do the same thing), but because so many people focus only on the interest rate, it’s a big part of the market.

I don’t claim to have the lowest mortgage rates in Illinois, though I know they are always in the market range. But making a decision on where to get a mortgage covers a lot more than who has the best mortgage interest rate. You need to look at the entire package. Not only how low the rate is, but is it the right type of loan for you? What are the costs of the loan? Do you feel comfortable with the loan officer and believe that he is truly working in your best interest? Does your loan officer return your phone calls and follow through when he says he will? What is the reputation of the company? Do you know anyone who has worked with them? Will they be able to close your loan on time and at the rate they promised? Do they show everything upfront and on paper? If you make the wrong decision, the lowest interest rate could cost you a lot of money.

My goal here at Illinois Mortgage Rates and News is to make the process as open and transparent as possible. I publish Illinois mortgage rates every Friday, and the rates I show are true rates that I will stand behind. These rates are real, still, they won’t apply to every situation. The only way to know exactly what rate you would be able to get is to have a loan officer talk with you and go over your full situation.

In my next post I will cover all the different factors which impact your mortgage rate.

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