With the latest Fed rate cut in the past (and another possible rate cut looming in the future), it is apparent that for those of us who are all about the 30-year fixed rate, the Fed rate cut didn’t help a lot. Mortgage rates went back up, after dipping prior to the cut. This means that if you want a home mortgage loan, you have to look for some other way to save money. Happily mortgage lenders plan to help you do just that.
Mortgage lenders offer incentives
Incentives have always been part of the home mortgage loan. Now, however, lenders are pushing them with greater frequency and urgency, trying to convince borrowers that they really do want to borrow money. Whether it’s for a first home mortgage loan or for a second mortgage, the idea is boost mortgage applications by offering incentives.
Some incentives, like green mortgages, offer to waive closing fees if you plan to make energy-efficient changes. Other incentives are more intangible: plant a tree in your honor if you close your mortgage, give to a charity. That sort of thing. Other incentives include savings bonds for borrowers and special payment options.
Mortgage lenders are even become blatant. Bank of America, as well as some other lenders, are offering to waive closing fees. No other requirements for the mortgage.
Do mortgage incentives really save you money?
The next logical question is, of course, Do mortgage incentives save you money? And the answer, like the answer to so many personal finance questions, is Yes and no. It all depends on the program, and what you decide to do with it.
In the short-term, and as it relates to upfront costs, most mortgage incentives that offer the no-fee choice do save you money. You can save between $2,000 and $5,000 on your mortgage closing fees if they are waived. But those savings could erode over the life of your loan. Check the mortgage lenders’ programs. Do their incentive mortgages have higher interest rates? If so, after 5 to 7 years you may find that you have more than paid the closing fees.
This is a way for mortgage lenders to draw you in, and then still make the same (or more!) off you in the long-run. Make sure your mortgage incentives don’t mean a higher interest rate. And make sure that your incentives aren’t attached to a low intro rate, or to a variable rate. Another Fed rate cut may be on the way, but it doesn’t mean that mortgage rates will come down with it.