Look at this APR for a home loan compared to the big bold printed rate

[Dave Hess]

We are helping our youngest daughter buy a small(er) home in the near future and I told her not to get excited by silly APR advertisements.

$350K range…

 

[Rand]

I'd call that misleading, scam baity.. it should be against decency if not the law.

 

[Vil_Riker]

I'd call that misleading, scam baity.. it should be against decency if not the law.

The terms are clearly stated.

 

[SC Maintenance]

Current FED rate is 5%, Bank of Canada is 4.25%, so the diff is .75%.

Current 5-year fixed mortgage rates in Canada are 4 to 4.5%, variable are 5.5%. Add the .75% central bank difference to the Canadian rates and you're talking 5.25 to 6.25%, yet the advert in the first post indicates 7.4%.

Is this typical, that mortgage rates in the US are higher than they theoretically should be based on what the fed rate is?

Nothing is priced off the fed rate except overnight bank lending. The fact its become this big thing in the news shows how little people understand.

US Mortgages are based off the US 10 year treasury. Usually between 2.5-3% higher +/- depending on which way rates are going. At this instant the 10 year is at 4.24%, and a 30 year fixed is like 6.9%. So there you are. A month ago both rates were about 6/10ths of a percent less. So much for fed cutting.

Low APR catches the headlines, but likely has many more origination fees. Likely only makes sense if your planning to keep the loan for the whole term or close to it, which most do not. Marry the house, date the rate.

 

[Rand]

The terms are clearly stated.

*quite true. My opinion is unchanged.

 

[daves87rs]

A fool and his money will always part ways.

In a fast paced world, it is wise to read the fine print. My parents always did!

 

[daves87rs]

Probably a lender buydown of the rate for year 1. Not a big deal.

Temporary buydowns have become very popular over the last couple of years.

Thought those were normal adjustable (jumbo) loans- not promo rate like a credit card. Even then I never understood the point of buying something you couldn’t afford after 5 years anyways……..

 

[BMWTurboDzl]

Thought those were normal adjustable (jumbo) loans- not promo rate like a credit card. Even then I never understood the point of buying something you couldn’t afford after 5 years anyways……..

Buydown is a little different. I usually see with with new construction built/sold by your national builders. It's just an inducement (2-3 yrs with a 100 basis point reduction per year in the rate) and the borrowers are obviously not qualified off the reduced rate. The seller pays for the inducement in a lump sum.

 

[SC Maintenance]

Buydown is a little different. I usually see with with new construction built/sold by your national builders. It's just an inducement (2-3 yrs with a 100 basis point reduction per year in the rate) and the borrowers are obviously not qualified off the reduced rate. The seller pays for the inducement in a lump sum.

How does that functionally work - in bond terms? Does the builder simply pre-pay the interest for the buy down, and the loan is securitized like any other mortgage, except it has some sort of escrow to offset the interest during the buy down?

 

[Pablo]

I'll say it directly. Their rates have never been good. And they aren't even that fast, but they sure fool some people.

People who try them, just end up going to another lender at some point.*







*r so I have been told.

 

[BMWTurboDzl]

How does that functionally work - in bond terms? Does the builder simply pre-pay the interest for the buy down, and the loan is securitized like any other mortgage, except it has some sort of escrow to offset the interest during the buy down?

Ya. Interest is pre-paid. There's a document of course which contains the allowed terms of the buydown. These documents are needed so the servicer can set up the loan. As far as how it impacts securitization I don't know.

 

[srfdude]

I'm quite happy with my 2.2% APR GI loan.

 

[02SE]

"There's a sucker born every minute".

 

[alarmguy]

A borderline candidate may not qualify for a 7% mortgage and quite possibly can qualify for a 5% mortgage.
That is where this will help. Either way this is business and companies are in business to make money. The sales promotion is eye catching. But the APR is in line with other banks. Also if you go direct to rocket mortgage, the standard rate is on the website as well

The clearly disclosed APR in that advertisement is on par with standard Bank of America 30 year home loan APR