Lenders Hawk Gifts to Get Your Business
A growing number of lenders are slashing their loan fees and offering other bonuses to borrowers as financial institutions head into one of their slowest times of the year and competition for mortgage-loan business heats up.
“Lenders are getting very aggressive in their marketing tactics,” said Terry Utterback, a Woodland Hills-based bank consultant. “It’s a great time to be a borrower right now.”
Bank of America, Security Pacific and Home Savings are just a few of the nation’s biggest lenders now offering home loans with little or no up-front fees. Dozens of smaller banks and S&Ls; are doing the same.
Some lenders have even adopted more offbeat gimmicks to lure borrowers. Coast Federal Bank, for example, is offering coupons for discount airline tickets to anyone who takes out a new loan or sets up a deposit account; others are offering microwaves, televisions or other gifts to new borrowers.
Still, lending experts caution would-be borrowers against falling for slick marketing gimmicks designed to help banks increase their share of the home-loan market.
“The typical borrower pays tens or even hundreds of thousands of dollars in finance charges over the life of a loan,” said Ken McEldowney, executive director of the San Francisco-based consumer-advocacy group Consumer Action.
“When you’re talking about spending that kind of money, the fact that you might save a few hundred or even a few thousand dollars up front isn’t so important. And choosing a particular lender just because you’ll save $50 or $100 on airline tickets or get a free microwave would be really silly.”
McEldowney said many of the lenders touting “no-points” mortgages are charging unusually high interest rates over the life of the loan to recoup the money they forgo when the borrower first takes the loan out.
Of course, you shouldn’t automatically reject a no-points loan if you’re thinking of buying a home, refinancing or setting up a home-equity credit line. Even McEldowney says that some of them are money-saving bargains.
Much of your decision on what kind of loan you take out will be based on the length of time you expect to stay in the home, McEldowney said.
For example, say you expect to move within the next two or three years. A no-points, no-fees loan would probably be your best bet, because the hundreds or thousands of dollars you’ll save in up-front charges will more than offset the cost of the slightly higher interest rate you pay over the life of the loan.
Conversely, if you plan to stay in the house for several more years or even for the rest of your life, you might be willing to pay relatively high set-up charges in exchange for a lower overall interest rate. The monthly savings you reap from the lower rate over the years will more than offset the money you pay when you first take out the loan.
What about those discount airline tickets or free appliances some lenders are offering to attract new business?
“The tickets have been a big factor in attracting new deposits, but we didn’t really expect them to play a big role in making new loans,” admits David Lawrence, a spokesman for Coast Federal Bank in Los Angeles.
“We’re not going to pretend that saving some money on your next airplane flight is going to be enough to entice you to take out a loan with us,” Lawrence said.
“But if another lender is offering a loan on the exact same terms that we are, we think that the discount tickets could be the ‘tiebreaker’ that brings your business to us.”
Exactly how long such loan-promotions will last is anyone’s guess.
Some experts say that with interest rates at their lowest point in more than a decade, one quick rate-upturn could scare today’s hesitant consumers into “getting off the fence” and buying a home or refinancing before rates rose further. That could encourage many lenders to drop their special promotional programs to bolster their sagging profits.
But other experts argue that rates don’t seem poised for any wild swings over the next several months, and that lenders may have to make their promotional programs even more lucrative before they see borrowers returning to their offices in droves.
Average Rates for Residential Mortgages Average rates for residential mortgages as of Oct. 11, 1991.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 8.55% 8.89% 8.73% 6.64% 6.90% California 8.69 9.02 8.86 6.70 6.73 Connecticut 8.57 8.91 8.77 6.78 6.88 Wash. D.C. 8.43 8.73 8.59 6.42 6.71 Florida 8.50 8.85 8.68 6.57 7.04 Mass. 8.48 8.85 8.68 6.57 7.04 New Jersey 8.59 8.93 8.77 6.62 7.11 N.Y. Metro 8.64 8.97 8.82 6.68 7.04 New York 8.71 9.04 8.89 6.72 7.03 N.Y. Co-ops 8.76 9.11 9.05 7.28 7.68 Pa. 8.36 8.72 8.55 6.51 6.69 Texas 8.43 8.81 8.62 6.53 6.75
SOURCE: HSH Associates, Butler, N.J.
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