There is a very large credit card company that recently closed their wholesale mortgage company and laid off 1900 people. It happened a week or so ago and was very upsetting to me as I had worked with them for over a decade. When they first went public I bought some of their stock. I personally knew a number of people who are now without jobs. They dealt with mortgage companies as opposed to the general public and yet they went down like so many others. Fast forward one week and the credit card company is on TV offering loans to the public.
The bodies are still warm and they are off on another venture. Maybe they had a retail mortgage operation before but I never heard of it or heard or saw any advertisements from their mortgage company. So far, although it wasn't pleasing to me, it is none of my business what this large company does. If I consider it bad taste that is my problem, not theirs. But here is the kicker. The advertisement that I heard, talked about giving you a "fixed rate under prime (the prime rate)". I guess they assumed that most people haven't the foggiest idea of what the prime rate is, that under that rate, sounds good.
THE PRIME RATE IS 8.25%!!!
Let me ask you, Would you take a loan with a higher interest rate? This is where I really get bothered. After all the heartache in the mortgage industry and for the borrowers who are in danger of losing their houses, and those who already have, do we need more deceptive advertising? Are we still believing in caveat emptor? We haven't even come close to fixing the problem! yet! But alas, I do not wish to just pick on this company, they are just one of many.
There is another national company that talks about the intelligence of borrowers and then offers a 30 year loan at a low rate with a higher APR, indicating, the last time I checked it, two points to be paid by the borrowers. Again, I assume that by complimenting the borrowers on their brilliance, the borrowers might think that it's a great rate.
I have always believed that one should never pay points on a 30 year loan as most people will refinance at the first sign of a lower rate. Very, very few people ever pay off a 30 year loan. I believe that if you want to buy down an interest rate by paying a point or two it should only be done on shorter term loans: 10, 15 or 20 years. People tend to stick with the shorter term loans and therefore can make money by paying a point over the life of the loan. Therefore my conclusion is: it simply isn't a smart thing to take a 30 year fixed loan and pay two (or any) points.
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.