It hasn't happened yet but one of these days I expect to hear that one of the big three auto makers came out with an ad that says you won't have to pay gas for the life of the car. It's on them. (Some restrictions apply). Oh yes, the cars will still be the same price. Would you buy one? Would you happen to also check the price before writing the check to see if maybe they were (fill in one of the following) kidding, had their fingers crossed, mistaken, hidding something or going out of business? I bring this up because one of the largest banks in the Country just announced free mortgage loans, actually not free but no cost. Some reporter actually asked them if they were going to raise their rates and they said nooooo. In their case they are actually telling somewhat of the truth. Really!
Let's now listen to the "rest of the story". A few weeks earlier I received a letter from one of the Vice Presidents of the bank who congratulated us on a great first quarter with them. We had achieved a preferred status with them several years ago and had more than maintained that status in the first quarter. It was nice to receive the letter as I knew we wouldn't be seeing another one of them for some time.
The local rep and I had just discussed the fact that they had gotten so busy they simply raised their rates to slow things down and had been "out of the market" for over a month. The very reason we deal with many institutions. She also stated that they weren't going to come back into the market except with one or two programs and were going to let their banks offer the no cost loans as they headed down the road with a new strategy. Fast forward to the announcement and the claim they weren't going to raise their rates in conjunction with the new no fee policy: they already had! I guess this is the modern version of "straight shooting".
You might wonder why I even bring up such drivel and it is simple: people believe they can get something for nothing. As long as it is free they don't want to worry that the cost may be greater than they should bear. Let me give you some of the best examples of what I am talking about: the 1% loan, no mortgage insurance required, no bank fees, 30 year amortization loan and the no point loan.
The 1% loan isn't. The interest rate isn't one percent the PAY RATE is one percent. The interest rate is anywhere from seven to nine percent and the difference between what you owe and what you pay is added to your loan. (See most of my columns). But if you took time to think about it when they offer the 1% loan they also give you other loans at higher interest rates. Why would you take a higher interest rate if you could have 1% ?
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.