If it Sounds too Good to be True, it Probably Is
Most of us have heard this phrase sometime in our lives and we usually live by it. But in some cases, the deal just sounds good. Take for instance the flyer I received in the mail from a local real estate company. Their goal is to prospect for renters that could be future home owners.
They have two photos of homes on the flyer, and in the upper corner of each home it says something like this: “Own for Zero down for $1052 per month P.I.*”. Sounds pretty good, don’t you think? (rents in the complex are between $1300-1600 per month)
Well, I noticed the little asterisk at the end of the statement, so I looked at the bottom of the page for the additional information. “Monthly payment is for 6.125% interest only”. Wow, 6.125 is less than today’s rate so they must be offering you a deal, right? Naturally our eyes travel to the rate, but what you might miss is the next piece “interest only”. There’s the catch.
I have a problem with this type of advertising because I consider it dishonest. Most people who are renting would love to own and would jump on this ad. But once they speak with the agent and lender associated with the ad, they will soon discover that on top of this price, one must add taxes and insurance. Getting someones hopes up, only to dash them a few minutes later, is not my idea of professionalism.
Here are my problems with the ad:
- Advertising an interest only loan in the market today is just foolish. Interest only loans are just as bad as adjustable rate loans. Buyers can afford the loan today, but will they be able to in the future?
- Interest Only means you are not paying any principal on the loan, and thus, never paying down the loan. To start to pay principle, you will have to refinance the loan, and with the way rates are going, your new rate could be a whole % more than the 6.125 shown in this ad.
- Many renters do not have the best credit, so they would never be able to qualify for an interest only loan. The lender knows this and wants to find them another type of financing. One major problem is that it is a “bait & switch” type of advertising. So the monthly mortgage rate you called about, most likely won’t be available due to lack of credit qualifications.
So the moral of the story is to listen to your gut. If is sounds too good to be true, it almost always is. Make sure you read the fine print for the real truth behind an ad. And of course if you have questions, don’t hesitate to call a professional for more information.