Costs
vs. Value – Part 2
We
recently discussed the propensity of the American
shopper to concentrate on initial costs instead
of the total cost over a long period of time, perhaps
the lifetime of the product. For example, smart
shoppers know that gas consumption, maintenance
costs, and trade-in value are often much more important
that minor variances in the initial cost of a car.
The
problem is that a lot of things can get in the way
of a conscientious consumer who is trying to figure
this out. First there is a jumble of unfamiliar
terminology involved. This can be disarming to
a shopper. The glossary in my book is ten pages
long, and I just hit the high points. If you are
interested, you can check it out online at http://www.loan-wolf.com/glossary.htm.
Feel free to print it out, or, better yet, buy
the book for lots of other good ideas.
Second,
these days most loan reps are not educated, experienced,
well-trained, career people. If you deal with
someone at an 800 number, it’s likely with someone
who is probably making a little more than minimum
wage. Their employers come up with sales pitches
that appeal to what they know consumers are looking
for. They coach their people to recite canned sales
pitches that may not bear any relation to your needs.
All too typically, the loan rep is so busy selling
this week’s hot product that they never ask the
shopper what his family’s goals are.
Finally,
many more lenders that you might believe are deliberately
deceptive in their dealings and routinely lie about
rates. Add all these up and it seems to me that
the average consumer is facing a scenario that is
a little short on value.
So
what does value mean? Well, first of all, start
out by finding someone who is interested in you
and is listening to you articulate what is important
to you and your family. The important ideas will
flow out of that discussion. For example, defining
how long you are going to be in a home will have
a lot to do with what type of loan best suits your
needs.
Second,
then you want to find out what lender is competitive
on that program you select, as no lender is ever
has the best pricing on more than a couple of programs.
If you are dealing with a mortgage broker, he
or she can best help you with this part of the process
because they have immediate access to information
that is much harder for you to develop.
Next,
you want to figure out when to lock in a rate. There
is significant variation in rates over a 30 or 45-day
period of time and you can save a lot of money by
locking at the right time than locking at random.
A rate lock will protect you if rates increase
in this period. As a side note, rate locks generally
do not have what consumers think they have, a “float-down”
feature, where your rate will drop if there is a
drop in the market.
Finally,
when you lock in, you need to determine whether
paying additional money up front to get a lower
rate makes sense for you. Letting a lower rate
this way is often attractive but if you started
out dealing with some turkey who was trained to
sell no-point loans, you’ll never be able to make
the calculations to determine the answer.
In
summary, having a value experience with the mortgage
industry means getting past a consideration of just
the initial costs and getting advice about the more
complicated issues. Minimizing your costs over
the long-term means going through the process with
someone who is committed to helping you get the
information you need, and who will provide the analytical
tools to help you make the best decisions.
Be
careful out there.
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