Interest RateReporting is Deceptive

I don’t know how or why this custom began but there is an assumption built into the interest rate quotes reported in the media that the buyer will pay pre-paid interest or “points” in the amount of 0.8%%.

Deceptive by Design

This system is truly ridiculous. If you applied the money paid for the points against the principal of the mortgage you would be paying slightly higher interest but on a lesser total sum.  Don’t be shy about asking your lender to calculate this both ways.  You will be surprised at the result.

Interest Rate Reporting is Deceptive for a Reason

The only reason interest Rate Reporting is deceptive is to keep you confused.  Why is gasoline sold in measurements of 1/10ths?  For the same reason.  Once someone does something shady to help themselves everyone feels they have to follow the practice to compete.  Look what steroids did to baseball.  When a competitor’s long flies are becoming home runs you are going to feel you have to cheat the same way to save your career.  When some competitive money lenders’ interest rate reporting is deceptive all will feel the need to advertise rates this way.

Let the Consumer Beware

Unfortunately the goal in advertising interest rates is not clarity.  I know of no new laws planned to forbid this practice so it looks like it’s here to stay.  As always the only way to be sure you are comparing apples to apples with loan rates is to compare the APR.  When all is said and done,  closing costs will reflect what you are really paying.  Don’t wait until the actual closing to study the figures and see how they break down.

Interest rate reporting is deceptive.  don’t be afraid to ask the hard questions.