The trouble with outliers
February 13, 2024 | Posted by: Chad & Patty Southwell
An outlier is something that differs extremely from most other things.
As a mortgage agent we have access to over 50 lenders, with a full spectrum of financing options. Lenders have generally the same products but most also have a niche specialty not offered by another. Rates are also typically similar, but on occasion lenders will promote a rate special for a period of time which slightly sets them apart from the pack. Mortgage lenders are required to adhere to guidelines and rules, essentially a boundary for lending practices, which protect the economy and the consumer. So while one may offer something another does not, it's always within this scope.
When a rate is drastically different from the norm it’s important to explore why. There are on occasion exceptionally low rate promotions. Some lenders have better rates than others as a rule. Here's the issue with the rate outlier, we've had clients quote rates they saw online only to find out it was either a “basic mortgage” (one that is completely closed with no prepayment options) or a variable rate mortgage (either a classic variable or a 5 in 1 fixed mortgage). These products have a place in the industry and are perfectly acceptable, so long as the consumer is aware that comparison to a fixed rate is not apples to apples. Consumers should be made aware of the potential material risks with products which are limited or change within the term.
We have also seen clients quoting products such as 100% financing for rental or construction mortgages. These outliers are high risk loans which are not secured and expensive. While you may achieve a short term goal by securing a property this way, the medium to long term consequences may not be worth it.
Real estate is an excellent long term investment if done carefully with reputable professionals. It’s not a get rich quick scheme. Ask questions, get second opinions and do your own research. The best place to find trusted professionals is a referral from someone you worked with before, trusted and had a good experience. Mortgage agents are perfectly suited to match products and rates to fit financing needs because we have a purview of the industry's offerings and are up to date on daily changes.
Standing out from the pack is not a bad thing, in fact that's usually where excellence lives; however, if it seems too good to be true, buyer beware.
