I’m quite serious – mortgage rates don’t count at all when you’re shopping for a house. In fact, when you are buying a home and you go to those wonderful websites that promise you everything in 30 seconds or less, you can easily damage your credit. Let me explain why mortgage rates don’t count and it’s dangerous to shop around.
Today we do everything through the web and most of us do it on a laptop late at night or on our smart phone during the day. If it’s in the internet we trust it – no matter what it is from a food recipe to financing our home. But should we? Blind faith is exactly that – blind.
Marketing folks have focused everyone in on rates. They have convinced you when buying a home that you should shop for the best interest rate you can find and THAT’S the ONLY bank you should use. Well guess what – shopping for rates is a total waste of time. Why? Because of 2 major facts:
#1 – Why worry about an interest rate today when the rate you get happens 2-3 months or more from now? Does it make sense to price a mortgage rate today when you get the mortgage months from now? Can anyone tell you exactly what interest rates will be in 3 months? No one can. So shopping for a rate today is completely irrelevant and it’s the WORST way to choose a banker.
#2 – Rates from one bank to another vary based on, in my opinion, how honest they are. Ever hear of a true rate? I bet not. Why? Because the marketing folks don’t want you to know about that. Every hear of a closing cost worksheet? I bet not. Why? Because that’s the truth and the ONLY way to compare banks. Rates quoted to you vary because banks play with the cost figures. If one bank is very low I will bet my life that they haven’t included all their costs. Is the light bulb going off in your head now? It should be.
I have seen customers insist on using Happy Financial who gave them an incredibly low rate only to learn later that the fees charged were astronomical. Did you know that if you pay a bank 1 point (1% of the mortgage amount) you can reduce the mortgage loan by 1/4%? Another light bulb should be going off – this is why the rate is so much lower. If you paid 1 point you can write that off on your taxes; when a bank hits you over the head with that 1 point in outrageous fees you can’t write it off.
The only way to compare bank costs is with a closing cost worksheet. An ethical banker will give you that when you meet with him or her. You won’t have to ask for it. An ethical banker will go over the mortgage process with you and explain why they recommend a particular mortgage to you. Such a banker will spend time with you, answer all your questions and most importantly NOT give you a pre-approval in a few minutes because that’s worthless (see a follow up article on this in the near future).
The bankers I recommend must reach my standards. There is no compromise on this. Both they and the bank itself must achieve my requirements in ethics and service. I will tolerate nothing less for my clients and nor should you.