Refinance Mortgage: Don't Tease Me

I'm sure you've seen the advertisements. "Refinance $250,000 for $833.00/month. Bad Credit OK!". The internet is filled with ads just like it. I found this ad at the top of the Google search page after typing the keywords "refinance quote". You might look at the headline and say "Wow! that's a great deal, where do I sign?". Please remember the old saying, "if it sounds to good to be true, it probably is". Just to play the devil's advocate, the offer listed above results in a 1.25% interest rate for a 30 year fixed loan. Current 30 year mortgage fixed rates are at around 6% for people that have the very best credit scores, qualifying income, and adequate equity interest in their home. Do you actually think that someone will offer you a 1.25% fixed rate with bad credit to boot? I'm guessing no, at least not for long. Now, to be fair, the advertisement did not state a "fixed-rate" or any other terms for that matter, and most probably is an introductory rate that will adjust upward and very quickly. I clicked on the headline ad link and was brought to another web page that requests your personal information so that you can get at least 4 offers in minutes. Still no details about the $250,000 for $833/month. Hmmm, maybe they forgot.

The above advertisement is what's known as a "Teaser Rate". They are often used by lead generation companies to attract your attention so that you give your personal information, which in turn, they sell to mortgage brokers and lenders. Depending upon the amount of money you requested to refinance, you could very well be on your way to a barrage of phone calls from competing loan originators. Competition can be a good thing, but it can also be confusing, especially when you receive conflicting information from multiple mortgage brokers. If you are not educated in the refinance mortgage industry, it can be difficult to know who to trust, who has experience, and who has your best interests at hand.

A true "teaser rate" program is a reduced introductory interest rate designed to attract borrowers to ARM's (adjustable rate mortgages). This initial discounted rate can be as low as 2% or even lower. The introductory rate period is normally for a relative short period of a year or less. Monthly payments can virtually double after the introductory rate period has ended. These loans can create "negative-amortization" (negative equity) for the homeowner because the market-rate interest (as opposed to the "discounted" introductory rate) on the loan starts to accrue from the get-go, and monthly payments aren't enough to cover it, let alone pay down any of your principle. Hefty pre-payment penalties are often associated with teaser-rate programs.

So, you are now aware that low-low interest rates quoted in advertisements may not be such a great deal after all. It's almost like supermarkets that advertise super specials, say a 5 pound bag of sugar for 1 cent. They offer this deal to attract you into the store to buy your full-weeks groceries at their regular prices. Think of this when shopping for super low interest rates. Skip the sugar and ask for the meat and potatoes.

If you are looking for great rates without the tease, we can help! Click here to get rates

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