WORDS I LIKE — Every shortcut hides a tradeoff.
You saw the headline. Maybe your stomach dropped a little.
"87% of mortgage borrowers are overpaying."
You wonder: am I one of them?
Maybe. But there's a piece missing from this story — and it's the one that actually determines who won.
Here's the part most people miss.
A study released this week compared what borrowers actually paid against what they "should have" paid. The gap costs Americans $65 billion a year, they said. What they didn't mention: what their benchmark actually was.
When a study calls a rate "competitive," it matters who's defining competitive. In this case, it was the firm that published the study — and that also runs a lending marketplace. They measured the gap. They also sell the solution. This is why a rate comparison website shows you one number and leaves out the rest.
A lower rate is not always the better deal. Most low rates come with a cost — called discount points — roughly 1% of the loan amount per point. On a $600,000 loan, buying the rate down could mean $6,000 or more upfront.
This is the break-even math. A lower rate might save $150 a month. Pay $6,000 upfront to get it, and you need 40 months to come out ahead. Move or refinance before then — and you would have been better off taking the higher rate.
THIS WEEK'S TAKEAWAY
The rate is one number. The structure, and how long you keep the loan, is the other.
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— Neil Christiansen, Certified Mortgage Advisor
