Much of the mortgage advertising you see on TV and the Internet is just downright misleading. Just because you see mortgage refinance rates advertised as “low fixed-rate” doesn’t necessarily mean they’re fixed. Here’s what you need to know to avoid getting burned by what’s being called the exploding Adjustable Rate Mortgage.
Beware Interest Rate Resets
Some time ago, mortgage lenders figured out they could advertise insanely low mortgage rates (called teaser rates) on 30-year home loans. They do this by manipulating the loan amortization period. You see, most home loans have a thirty-year term length whether they’re fixed or adjustable. Take a 5/1 Adjustable Rate Mortgage (ARM) for example…the mortgage rate is only fixed for the first five years, after that the interest rate adjusts every year for the remaining 20 years of the term.
This is where the term hybrid adjustable rate mortgage comes from; it blends a fixed rate loan with an adjustable rate monster you would never want. Why would you agree to a loan that would adjust and possibly raise your payment on an annual basis?
Deceptive Advertising with Hybrid ARMs
Mortgage lenders try to trick you by promoting the fixed rate period of their 5/1 Hybrid ARM because the refinance rates are much lower than a traditional, 30-year fixed rate home loan. This makes that 3% 30-year mortgage rate a teaser in every sense of the word because that rate will be gone after five years…hence the bait-and-switch.
You can learn more about avoiding deceptive lending practices and unnecessary fees by checking out my free Underground Mortgage Videos.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
