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In 2008, I was house shopping. I was pre approved for a mortgage by the bank that I was using at the time. A couple of weeks later, I found the house that I wa
by LordKano 11y ago
In 2008, I was house shopping. I was pre approved for a mortgage by the bank that I was using at the time.
A couple of weeks later, I found the house that I wanted and went to the bank headquarters to get started on finalizing the deal. The bank VP brought me papers that showed an interest rate that was 1% higher than the rate for which I had been pre approved, less than two weeks before.
When I pointed this out, he gave me a line about how mortgage rates fluctuate daily. I responded that I had been checking mortgage rates on bankrate every day for months and no one else's rates had increased by 1% in the last two weeks. Me paying that higher rate was simply not going to happen.
He thought I was bluffing and said "This comes out to only about $40 per month on your payment, are you really willing to not buy the house over $40?". I did the math in my head, roughly $500 per year, $5000 per decade, $15000 over 30 years. I told him "I'm buying the house. The real question is if you're willing to miss out on hundreds of thousands of dollars in interest over $40 per month?". He said that there was nothing he could do. I gathered up my documents, closed my briefcase, got up and walked out of his office.
I contacted a mortgage broker and got a new pre approval from another lender. I ended up getting a rate that was right between my original pre approved rate and the rate that S&T Bank tried to get me to take.
I think that a lot of people get overwhelmed by the jargon. Rate, points, APR, APY, closing costs, PMI, overpayment penalties and everything else that goes along with it and just want the whole process to be over. I think that a lot of people just sign the papers to be done with the process because they don't want to deal with the process anymore.
Get past the jargon and industry terms and the math isn't difficult. Additionally, it's worth it to know the numbers and what implications are attached.
- nostromo 11y agoI saved a lot of money using a broker. I'm actually not sure why people go directly to banks -- brokers are there to do all the work for you and to save you money. The key to mortgage brokers is using several. Contact two or three and see which one finds the bank with the best deal.
- cpwright 11y agoAs a counterpoint, I'm not sure why anyone would use a broker when it is clear they also need to get paid; and you can call a dozen banks to get their interest rates for whatever kind of loan you're trying to get yourself. When you're talking about hundreds of thousands of dollars (or maybe even over a million), doing a bit of work yourself seems like a good idea.
- jholman 11y agoWell, in theory the broker is getting paid by the lender, not by me (the borrower). Of course, we all know that in a rational market, that cost has to be passed on to me. And yet strangely, I get a better offer when I ask the broker than when I straight up tell the bank "I'm going to go to a broker now, and so this is your last chance to beat whatever offer they're going to give me". Conclusion: lenders are irrational. Surprise!
- LordKano 11y agoI suspect that this has something to do with the fact that a portion of the administrative work is offloaded to the broker. I never met anyone from the lender when I got my mortgage. All of the background investigation, income/employment verification and paperwork was completed with the broker.
- kasey_junk 11y ago> Get past the jargon and industry terms and the math isn't difficult. If you are talking about the math on individual mortgages, you are quite right. It is quite literally what should be the foundation of a basic education. If you are talking about mortgages in aggregate, as the article is, the math is surprisingly difficult. Modeling prepayment rates, default rates, etc especially as they relate to rate changes and economic inputs is surprisingly hard.
- Kluny 11y agoI think that this is very true. I've reflected on the trouble I've had in the past with things like applying for college, filing taxes, filing worker's compensation claims, and so on. I find it difficult and more than once I've given up on something important to me because I couldn't cope with the paperwork and process. Right now I'm researching real estate and financial planning in my spare time, even though these aren't major concerns for me yet, simply because I want to be prepared when it's time. It's difficult stuff. It may be possible to help some people with apps or services that make the process invisible to them, but I'll never be convinced that such a shortcut isn't taking advantage of me. So for people like me, I guess there will always be a market for better books.
- jfolkins 11y agoAnyone buying a home in 2008 wasn't doing the math. That was prime time bubblesville.
- LordKano 11y agoARMs and Interest Only mortgages factored heavily into that situation. I have a friend who lost a house during the bubble because his ARM went up when he was having financial difficulties. I bought mine a few months before the bubble burst. Fixed rate and a reasonable (at the time) rate. Interest rates have dropped since then but I haven't taken the time to refinance.