Tuesday, March 24, 2009

Interest Rate Bait and Switch

While hosting an open house, it is a standard question to ask prospects as they are viewing the home, "Are you under contract with an agent?"

One of the newest responses is that the "agent" is providing financing for a purchase a full percentage point lower than the lowest quoted rate I am aware of.

My first response was surprise.. That low?   How are they doing that?

Having been around for two decades I am familiar with interest rate buy downs that were very prevelant in the late 80's and early 90's. So I decided I needed to investigate.

I contacted the TD Bank Mortgage advisor and made the same request of the Royal Bank Mortgage Advisor. Called an independant Mortgage Broker and No One could touch or even come close to the quoted interest rate.

Maybe the consideration was blended mortgage averaging whereby 50 % of the mortgage balance would be in the (risk) variable rate calculation and the balance in the fixed rate portfolio. But that only brought me a half percentage closer to the quoted amount.

Further investigation of the asterik in the website's mortgage term was required. You know Nudge Nudge wink wink **   some conditions may apply.

Well...  Now a week later we finally have a few concrete answers. The interest rate is indeed one full percentage lower than today's rates.   So, for example a fixed rate mortgage of 4.22% could be had for as little as 3.38%. **    see the arterik?

But the interest rate is a teaser rate which contains an interest rate buy down for the first year term of a five year mortgage only.  None of the prospects I spoke understood the difference. They all assumed the rate was for the full five year period.

ING and HSBC also have interest rate teasers that induce you to take a mortgage with them. They are clearly marked as "low introductory rate" for [insert specified period] usually 6 months.  

With all the news in the media and a lack of consumer confidence in the economy, I do not agree with a Bait and Switch marketing program that leads people to a conclusion different from the Posted or Guaranteed Rates.  I have made an effort with my clients to present them with the best possible interest rates for their mortgage needs based on their credit worthiness. How would you like to be treated?

Once you have all the facts, the decisions are yours. You will be living with your choices.

From the US financing model these could be termed TOXIC loans.  Myself, I would prefer not to involve my clients or prospects in hidden fees or interest rate adjustments instantly after they move in.   They have enough on their plate with Land Transfer Tax's, rebates, First Time Buyers programs, and ultimately the selection of a home.

Lets not confuse people out there. Lets get them the best deal possible.

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