Rates - APR - Points - Fees: How the Playing Field is Still "Crooked"
I talked to a client today who was shopping me against some other lenders. I don't blame people, and frankly if I think someone else has a better offer and they are legit, I advise "my client" so and have no hard feelings.
In the scenario today, said client was offered 4.5% with no points. I told him it wasn't possible, but lest I be ignorant, I dropped by this other lender's website. Indeed, the lenders website quoted 4.5% with no points and an APR of 4.878%. The website gave the assumed loan amount and purchase price. So I went and did the math. What did I find out? To make the rate and APR accurate, I had to add 2.25% in points ON TOP OF all of the regular fees (title, appraisal, etc.).
In other words, even though the quote was 4.5% with zero points, the TRUE cost was 4.5%, plus typical closing costs, PLUS 2.25% in additional fees/costs.
Please send me your Goofy Good Fake Faith Estimate!
There are several issues with this scenario
- APR is supposed to HELP consumers, not confuse them. Clearly this bank (a large bank at that) is charging hefty fees instead of points. This brings us to our next point ...
- Points are tax deductible costs - most other fees are not. Charging high fees in lieu of points is an injustice to the consumer. We see rates quoted with NO POINTS to make them look better to consumers. However the total cost is ultimately higher than a lender that is straight forward, charging the same dollar amount but in the form of points. A loan with the same cost in points (versus fees) is a far better deal, saving a consumer hundreds or thousands in tax deductible costs.
- APR is "pliable" - Certain fees are calculated into the APR calculation, others are not. Do not assume lenders don't play with the "names" of fees to artificially lower their APR's. That doesn't seem to be the case in the above example, nonetheless keep this in mind.
- Lastly, said bank WOULD NOT give the buyer a good faith estimate without having him apply for a mortgage. OK, not so crazy, but the good faith estimate would not be given for 3 days. And if the bank charged an application fee? That would just be another deceptive way to lure a consumer in and tie them to the bank.
Any lender should be able to offer you a good faith estimate (GFE) in a fairly short amount of time, 24 hours or less, allowing some time for when a lender is very busy. Assuming the lender is honest and accurate with their fees, you should be able to see the true cost of their offered rate. You should be able to see, as in the above scenario, that their rate of 4.5% with no points really has a lender fee of $4,119 (Actual additional cost based on their APR). This same week I had another rate shopper send me a goof good faith estimate with 1% in points and $2,100 in application fees. THIS IS NOT NORMAL or fair to you as a consumer, especially on a purchase loan.
I am not angry for losing business. I am however angry because of the lenders and loan officers that mislead and decieve consumers who are just looking out for themselves by rate shopping. What we often see, is that many consumers that search the world over for the lowest rate, actually end up paying much higher costs via deceptive lenders. Consumers can be blinded by a low rate, not allowing them to see the true cost.