Despite the economic crisis, many people have recently received a mortgage application in the mail offering 0% APR for a specific time, usually phrased as a limited time offer you need to act on now.
While this offer may seem attractive, and one you would be a fool to miss out on, it is merely a gimmick the credit card companies and mortgage lenders utilize to entice people by offering an apple when, in fact, the real deal turns out to be a lemon.
According to the Federal Reserve, any initial information you receive about mortgages probably will come from advertisements, mail, phone, and door-to-door solicitations from builders, real estate brokers, mortgage brokers, and lenders.
Although this information can be helpful, keep in mind that these are merely marketing materials. The ads and mailings are designed to make the mortgage look as attractive as possible, without you ever looking at the fine print.
These advertisements may play up low initial interest rates and monthly payments, without emphasizing that those rates and payments could increase substantially later. Indeed, that they would be much more substantial as soon as they check your credit history!
So if you are looking to get a mortgage even in these turbulent times, make sure you get all the facts of the offer being put in front of you, and make sure any offers you consider meet your financial needs.
Any ad for a loan or financing of any type that shows a 0% APR introductory interest rate should also show how long the rate is in effect. If the APR is much higher than the initial rate after the grace period, any money you have borrowed will incur finance charges at a much higher rate, even if market interest rates stay the same.
An interesting article by Carolyn Noel Warren of Mortgage Helper tells about her experience attending a seminar hosted by one of the leading lenders in the U.S.
In discussing how they compete for customers who are seeking loans and refinancing, the speaker stated: “Give them apples and oranges to compare, so that won’t know which loan is best.”
These are the tactics lenders utilize to steer you towards their company for your financial needs, even though it might not be right for you.
If you are considering refinancing and happen to receive an offer where the APR is 0%, yet when it is time to sign the contract you find that the APR is not 0% but a much higher number, you will want to reconsider.
Any credit card offer in the mail that is similar, and offers you a balance transfer, might also be tempting, BUT look at the length of the grace period, and the APR if you are deemed to default, and any fees associated with the balance transfer (often 3 to 6%, in which case it is NOT 0% APR, now is it?)
I know of people who have had TERRIBLE experiences with Discover card precisely through that kind of misleading advertising, with their APR up to 22% now, even though landing is at 1/2%!
The sub-prime mortgage crisis has made homeowners more aware of the problems associated with mortgages and refinancing when dealing with unscrupulous lenders. If an offer sounds too good to be true, it usually is.
The same is true of credit card companies. If you must have a credit card in case of emergencies, know which one you have has the least percentage rate. Make sure you also pay off more than the minimums each month, and go out of your way to pay them down NOW, as fast as possible, so you are not getting zapped with a lot of monthly finance charges.
Research your lender thoroughly, ask questions, and don’t fall for 0% APR. Be smart with your money, and reap the rewards.