The Schemes the Big Box Banks are Using to Attract Borrowers.

I recently had a conversation with a Realtor I know. He told me about the tactics some of the banks were using to market to his borrowers. “They sound really good!” he told me. “Can you offer these too?”

“Yes,” I replied. “In fact, almost anyone can. However, the banks aren’t telling the whole truth in what they’re offering.”

I broke down each of these schemes and explained it to him:

• Put Less Than 20% Down With NO PMI!
  Whenever a borrower puts less than 20% down, PMI is required in one way, shape, or form. PMI can be paid in one of three ways:
  1. As part of your escrow account. This is the most typically used method and is the most visible to the borrower. The borrower can see the PMI on the mortgage statement and the amount being paid every month.
  2. A one-time, up-front payment: This method isn’t used often, as this payment can be many thousands of dollars. A borrower with a minimal down payment typically does not have the funds available. HOWEVER, if the lender increases the interest rate in order to fund this payment, it makes the loan appear not to have PMI!
  3. PMI can be built into your interest rate: For some borrowers, it makes sense to have the PMI built into the interest rate (i.e., a higher rate) instead of having the PMI paid via the escrow account. Having the PMI in the rate sometimes allows for a lower over-all payment and often allows the PMI to be tax deductible (because it is being paid as mortgage interest). HOWEVER, unless the Loan Officer explains this, the borrower may simply believe they’re not paying PMI!
     
• We Will Help Pay Your Closing Costs!
  All borrowers have the option to pay points in order to buy down their interest rate. Along those same lines, all borrowers have the ability to increase their interest rate in order for the lender to provide them with points, which can be used to pay some of their closing costs! This practice is nothing new. It’s been available for decades. Sometimes it is financially advantageous for a borrower to utilize this, whereas other times it is not. However, unless these options are properly explained to a borrower, the tactic becomes nothing more than a sales ploy.
  
  
• Fixed Rate Mortgage at 1% Below Prime!
  At the time of this writing, the Prime Rate was 8.25%. Thus, 1% below Prime was 7.25%. Most lenders were offering fixed rates well below this. Thus, this offer is no bargain. However, I’m sure it got the phones ringing!

While some borrowers still think they can shop around for the best rates and closing costs, more and more borrowers are realizing there’s no free lunch out there. Borrowers are realizing the value of a competent, qualified and trusted Certified Mortgage Planning Specialist® who will help them cut through the noise of snake-oil salespeople, make them comfortable, their lives easier, and deliver them to closing with a smile on their face.

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Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.