Anytime someone is looking to save you money, you should probably be skeptical, really skeptical.
After all, it’s one thing to seek savings on your own, but if someone is doing the work for you, there’s a good chance they’ve got their own best interests in mind.
Yesterday, a few publications, including American Banker, grilled Bank of America for its recent refinance pitch to a New Jersey customer.
At first glance, it sounds like a slightly better deal, though not all that significant in regard to rate.
But BofA smartly chose to highlight the mortgage payment savings of $362 of month, and $4,344 annually.
Unfortunately, if you actually bother to read the fine print, beyond the headline screaming at you to refinance, you’ll notice that the APR is 4.105%, higher than the borrower’s existing mortgage rate.
The APR is that high because Bank of America is helping itself to two mortgage points to get the deal done, and those must be factored in and presented to the borrower.
Additionally, because Bank of America is recommending the borrower refinance into a 30-year loan, they effectively add 10+ years to their loan term, which will cost the borrower more money in interest as the loan amortizes that much more slowly.
In fact, the offer would add $37,188 in additional interest over the full term of the loan, which doesn’t seem to be in the large print, or any print for that matter.
The best part of the offer though, as highlighted by American Banker, was the following Q&A:
Q: “What kind of new loan will I have if I refinance?”
A: “The loan that’s right for you.”
Watch Out for Mortgage Offers That Come to You
Look, at the end of the day, Bank of America is permitted to pitch deals like this to their customers, and the company was quick to point out that it disclosed everything properly.
If you focus solely on monthly mortgage payment, which is ostensibly what BofA wants you to do, there are savings of nearly $400, which could help a struggling borrower looking to minimize expenses.
Just because a homeowner will pay more over time doesn’t mean they won’t want to save in the near-term, especially if they have more pressing matters.
We also don’t know what the borrower has in mind – perhaps they don’t want to pay off their mortgage that quickly (or at all), though if they have a 20-year fixed, there’s a good chance they’re more in the “I want to pay it off” camp.
But the issue here is that the bank is coming to you with an offer they’ve carefully constructed to be appealing, even if it doesn’t make a whole lot of sense, let alone save you money.
For this reason, you should always take offers that come your way with a huge grain of salt.
The individual assembling the offer has the advantage of sitting back and coming up with a scenario that will appeal to you, as opposed to a more objective process where you sit down and run the numbers yourself.
Perhaps that’s why it’s called marketing, or more specifically, inbound marketing. Targeted marketing even.
If you do receive an offer that sparks your interest, be sure to do some shopping on your own to see how it stacks up. Chances are there will be something out there that’s better, and possibly much better.
And be vigilant because as rates rise and the mortgage market slows, loan originators will become increasingly desperate to drum up new business, even if it doesn’t make all that much sense for the borrower.
Read more: 10 tips while mortgage rate shopping.