A few weeks ago, I came across a particularly annoying click-bait pop-up ad from a well-known online lender. “Do the math (the banks wish you wouldn’t do),” their advertisement said.
In Australia, where free speech laws are less absolute than they are here in the United States, it is illegal for a business to “make statements that are likely to create a false impression.” While I am 100% behind our American tradition of vigorous free speech, ads like that one make me see Australia’s point.
People do not trust a lot of the advertising they see online. Why would they? I believe most people recognize click-bait. They realize that any advertiser using “scare tactics” – especially around finances – probably does not have consumers’ or customers’ best interests at heart.
That was definitely the case with this pop-up ad. The online lender was promising a “Mortgage Payoff Trick” that would “Eliminate Up To 15 Years of Payments.”
But what they were pushing was a 15-year mortgage. And sure, if you take out a 15-year mortgage, you will eliminate 15 years of mortgage payments. But that’s NOT a “mortgage payoff trick.” It’s a 15-year mortgage. 15-year mortgages have been around for decades.
The online lender also used very far-fetched examples for the mortgage rates in their ad, specifically 2.50% APR for a 15-year loan versus 4.50% APR for a 30-year loan. A two point difference! But that’s not what the difference really looks like these days. The spread between a 15-year loan and a 30-year is more like 3/4s of a point, not two points. Their numbers are way off.
The online lender goes on to say that banks “make millions of dollars in interest” so banks don’t want you to know that you will pay less in interest if you pay off a loan in 15 years instead of 30 years.
Come on! What they don’t say is that the monthly payment on a 15-year mortgage is considerably more than on a 30-year loan. Most borrowers can’t afford the payments on a 15-year loan without stretching their finances so much that there’s no money left for other reasonable life expenses.
And since many people sell or refinance before 30 years have gone by, most never pay all the interest the online lender refers to anyway.
It seems to me that the online lender’s insincere click-bait ad uses the phrase “do the math” to worry people who are rightfully concerned about getting it right on a significant decision like getting a mortgage.
Here’s the truth:
> A reputable lender will not use scare tactics or push “mortgage tricks.” Period.
> A reputable lender will be happy to do the math for various mortgage options for you.
> Reputable lenders want you to have a mortgage you can repay comfortably.
> And if you make extra principal payments to reduce the overall interest you pay or even if you pay your mortgage off early, reputable lenders will be delighted for you. Because we take personal satisfaction in your success.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to info@cantoncoopbank.com.