Comparing Apples to Apples

A client I was working with recently forwarded an e-mail he had received from a mortgage company claiming a $750 monthly payment on a $350,000 loan and that he was pre-approved! This company quoted him a 3.5% fixed rate or something like that. It sounded a bit too good to be true.

These days you can get quote from anyone that beats anyone else. You have to be careful with these quotes and you have to know how to compare apples to apples. A straight rate to rate comparison is not an apples to apples comparison because a low rate often times involves an up front payment. In other words you pay for a lower rate. Is this good? Not necessarily.

First you have to remember that the interest you pay on a mortgage is tax deductible and with a lower rate you’re paying less interest and the up front payment you make is not tax deductible. Second, you must ask yourself, if you have the extra cash up front – why not just decrease the loan amount – this will also lower your monthly payment – and you can have the slightly higher rate.

Finally, you have to know that a straight note rate quote without an accompanying APR quote is illegal. I would be very weary of anyone that doesn’t willingly provide both quotes (or upon your request). Call me if you have any questions.

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