I’ve worked in mortgage lending for 8 years. I was the SVP of a bank that wrote $11B in home loans and now I serve as the CEO of RateGravity, a modern mortgage brokerage that I co-founded with a mission to return millions of wasted dollars to homebuyers.
Recently, I’ve received a number of questions about ads and emails that homeowners and potential homebuyers are receiving from lenders that state something to this effect:
“The Fed is going to raise rates, YOU MUST ACT NOW! Buy or refinance before it’s too late or you’ll be doomed!”
With all due respect to my industry colleagues, it’s bullsh*t. In fact, it’s a brazen, shameless sales promotion. They are hiding their dishonesty in a veil of personal advice; but at the end of the day, is this sense of urgency helping the consumer or helping them get paid a 1% commission?
Let me get to the specifics of why the tactic of fear mongering rising rates is so dishonest:
1. Short-term rates ≠ mortgage rates — The Fed is expected to raise rates in December, but those are short term interest rates. Mortgage rates are long-term rates. They are not the same. While the Fed expects that raising short term rates will eventually influence long term rates, there are many other things that must happen in the economy before this can happen. In fact, the last three times the Fed raised short term interest rates, long term rates (i.e. 10 years or more) have stayed the same or gone down.
2. Rate changes are small, home prices are big — When buying a home, it’s never wise to let outside influences that are out of your control drive your decision. Buying a home is likely the biggest financial decision of your life, so it’s critical that you’re comfortable with exactly how much you can afford and not let a minor uptick in rates force you into an uncomfortable financial decision.
3. Fixed rates don’t care — 95% of homeowners have fixed rate loans so there is no risk that their rate will change throughout the life of the loan. If there is a genuine financial benefit to lowering a homeowner’s rate without charging fees, that should be explored, but creating a false sense of urgency is no way to achieve that cause.
I understand that lenders want to stay in touch with their customers, but pandering to their financial fears just perpetuates people’s feelings that the mortgage industry is comprised of sleazy salespeople. Mortgages are complicated and scary enough already without this noise.
The mortgage industry owes it to homebuyers to do what’s in their best interest not take advantage of market conditions to confuse and scare people. When searching for a lender be sure to find someone that truly acts as a fiduciary and puts your interests ahead of their own. If you received an email promoting an ad like this one, you should probably question if that person is looking out for you or looking for a commission check.