Don’t get caught in a shell game
Most of us have strolled along the boardwalk or the streets of New York and watched a street magician perform. One of the magicians favorites is to have a passerby place a ball under a cup and watch the magician begin swirling the cups, faster and faster, while I try to remember which cup has my ball. I can easily admit being burned by this trick many a time. What happens is really a simple trick of distraction. Too many cups, too few eyes. It is the same sort of trick that lenders use on their patrons, or as we affectionately call them, FOOLS.
To a magician and a banker, we are all FOOLS.
Unlike a magician, I am not bound by any secret society promises. I can reveal these secrets without too much fear of retribution. I will take the fun out of the trick, and in the process, save you thousands of dollars in unnecessary fees.
The Shell Game
Here is how the banks play the game. First of all, they need a bunch of objects to confuse you with. For this they bring in the shells- origination fees (points), closing costs, and the interest rate (note rate). They know that in the hands of a magician, they can spin these shells and come out with the best deal for them.
IF the borrower chooses the lowest rate, the bank will jack up the point and fees. If a borrower wants the lowest fees, the bank will jack up the rate. If the borrower doesn’t want to pay any origination points, Fees and rate will go up. Anyhow, you get the jest of it…the lender will use the shells to give you what you think you want, while actually getting what THEY want.
As a borrower, you need to take the shells away, one by one. First of all, never entertain any offers that have origination points. By doing this, you have eliminated one of the lenders shells. You are now down to closing costs and the note rate. For reasons contained in my previous blog, I would eliminate the closing costs as well. By eliminating this shell, you have shifted the pressure on the bank. There is no place for them to hide, your question is simple – now that I have decided not to pay ANY closing costs, what is your best rate? Where can the bank hide? They can’t raise the processing fee, because you aren’t paying it. They can’t charge a point, because you aren’t paying it. All they have left is one shell, lift it up, and there’s the prize. A simple low rate. Lock it. You will win every time.
-Mortgage Maniac