Interest Rate Reporting is Deceptive
Interest on 30 year mortgages is at its lowest point in 3 years. Reliable indicators show interest rates will probably go even lower before leveling off. What a great time to buy or refinance for those with credit scores good enough to get the very best interest rates. Most lenders want to see FICO 750 or above for the very best interest rates.
I don’t know how or why this custom began but there is an assumption built into the interest rate quotes reported in the media that the buyer will pay pre-paid interest or “points” in the amount of 0.8%%.
Deceptive by Design
This system is truly ridiculous. If you applied the money paid for the points against the principal of the mortgage you would be paying slightly higher interest but on a lesser total sum. Don’t be shy about asking your lender to calculate this both ways. You will be surprised at the result.
Interest Rate Reporting is Deceptive for a Reason
The only reason interest rate reporting is deceptive is to keep you confused. Why is gasoline sold in measurements of 1/10ths? For the same reason. Once someone does something shady to help themselves everyone feels they have to follow the practice to compete. Look what steroids did to baseball. When a competitor’s long flies are becoming home runs you are going to feel you have to cheat the same way to save your career. When some competitive money lenders’ interest rate reporting is deceptive all will feel the need to advertise rates this way.
Let the Consumer Beware
Unfortunately the goal in advertising interest rates is not clarity. I know of no new laws planned to forbid this practice so it looks like it’s here to stay. As always the only way to be sure you are comparing apples to apples with loan rates is to compare the APR. When all is said and done, closing costs will reflect what you are really paying. Don’t wait until the actual closing to study the figures and see how they break down.
