Today, a look at 2 more of the Things Your Lender Won't Tell You.

 

2. "A Slightly Higher Rate for You Means a Big Paycheck for Me."

 

Getting you a loan with the lowest possible interest rate is not necessarily in your lender's best interest. Rather, he probably wants you to take the highest rate that you can afford. That's because on top of their regular commission — usually 1% of the loan — lenders can earn an "overage" of another 1% to 2% if they sell you a loan that is more expensive than the best available deal.

 

Sometimes they mark up the rate by one point; other times, it's just half apoint. In any case, it adds up. One Fairfield, Conn., couple has to pay an extra $1,000 every year on their $230,000 mortgage because their loan officer sold them a 30-year loan at 9.5% — higher than the best rate that day. The reason: For charging the higher rate, the broker reaped a 1% fee.

 
3. "Don't Count on Your Rate Lock When Rates Are Rising."

 

Even though you've locked in the interest rate on your new loan for 60 days, don't count on getting the rate when your application is approved. Sometimes lenders will actually hold up your application if it means you'll have to pay a higher rate. In 1993, the Federal Trade Commission charged Lomas Mortgage USA, one of the nation's largest lenders, with falsely promising borrowers that it would unconditionally lock in the mortgage rate and discount points for 60 days. In fact, in many instances Lomas levied higher rates and more points within the 60-day period, the Commission charged. The Dallas lender settled with the FTC in July, 1993, and agreed to pay $300,000 in so-called "consumer redress."

 

"It's the lender who has control over how quickly the paperwork gets done," notes Michelle Meier, a lawyer with the Washington activist group Consumers Union. "And there are always all kinds of reasons why that locked-in rate is unavailable by the time they get to closing."

 

"It's the lender who has control over how quickly the paperwork gets done, and there are always reasons why the rate isn't available by then."

 

As interest rates rise, so do rate-lock complaints. Patricia Cunningham, Consumer Affairs Manager at the Illinois Office of Banks and Real Estate, says that in 1994, when interest rates were high, more than 600 rate-lock complaints came in. In 1995, when interest rates fell, so did the number of complaints — by half. In 1996, with interest rates back up again, the number of complaints also rebounded.
Next time, a Look at #4 and #5 in this series…

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