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5. Interest Rates

Mortgage interest rates can be a mystery.

Why are one lender's rates so much lower than another's? Or, conversely, why are one lender's rates so much higher? Consumers can get an immediate price quote on nearly every consumer item on the market, from the cost of gasoline to the price of an airplane ticket. Mortgages aren't like that.

Mortgage rates are set each and every morning by the various mortgage companies. That's right, every morning. And they can change throughout the day. If you understand how mortgage rates are set and what affects them, you'll be prepared if a lender seems to quote one thing and offer another.

The Mortgage Rates You See in the Newspaper Are Never Reliable.

This means that you can never lock in the rate you see in the newspaper. Most Sunday newspapers carry a weekly mortgage rate survey from various lenders; it can be in the form of an advertisement, or the newspaper can actually pick up the telephone and call various lenders to get a rate quote.

Either way, the quotes are inaccurate at best.

Typically, these so-called rate surveys must be completed by the newspaper no later than the Thursday before the Sunday paper runs. Thus, the rates you see are at least that old. In fact, if you call up a lender that is advertising cheap rates, you'll find out that those rates aren't there—they were good only on the date the information was gathered.

The very same thing can be said about mortgage rate advertisements in general. You see them everywhere. You can see them in the sports section of a newspaper, you can hear them on the radio, and you can even see them on billboards or nailed to utility poles.

So what good are these rate surveys? Not much, really, but you need to understand the dynamics that are at play here. Mortgage companies that list their interest rates alongside other lenders' rates know one thing: that people who look at such information are doing so to compare one lender with the next. What's the point of advertising your interest rates if you're the highest? You could get a reputation for being the highest lender in town.

The point of advertising rates is to get new business from consumers who are looking for low rates. Do consumers shop for the highest rates? Of course not. Knowing those things, mortgage companies must quote low, low rates.

The companies also know, of course, that should a consumer actually contact the lending company and want to lock in those rates, the response from the loan officer will be something like:

"Oh, I'm sorry, those rates were available last week, but I'm afraid the market has moved since then. But since you've called, tell me . . ." And so on. The lender's advertisement is doing what any good advertising is supposed to do—generate leads. The salesperson (your loan officer) takes it from there.

Is this "bait and switch"? Probably. If in fact you can get the interest rate that is advertised, then it's not. But if the rate being quoted in an advertisement isn't available for some reason, then either rates have moved since then or that rate was never really there.

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