AAA Blog

I am sick and tired of mortgage companies advertising their low fixed rate.  You hear it on the radio all of time.  "For a limited time get 5.375% fixed rate"  What a lie!  How can one company offer a rate 1% (sometime more) below the market.  The truth is they can't.  Everybody essentially has the same set of market rates to work with.  However, some choose to obscure the rate with silly teaser adds.  Let me explain.

The average market rate is based on taking the 30 year average interest rate from around the nation based on 0 points to the consumer.  Now a consumer can choose to buy a rate that is below the market rate.  The use of discount points help achieve this goal.  In effect, the consumer pays the mortgage lender for a cheaper rate. 

In most cases the amount that is costs to buy the rate down will never be recouped.  It is mearly a tactic to make the phone ring and confuse the consumer.  Don't be fooled!  If it sounds too good to be true it certainly is!  You need to ask yourself why is the company that sold me that adjustable mortgage just a couple years ago is offering this low fixed rate now?

There is a way to see through this.  The truth is in the APR and not the interest rate.  If your APR is significantly higher than the interest rate there is something amiss.  The APR tells you the cost of your credit.  A high APR means greater cost of loan.  If you listen closely you can hear that announcer in the background whispering the APR.

So next time you hear that guy with the annoying voice on the radio trumpeting his great rate.  Ask him about the APR.