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Effective Interest Rate?? Be Careful

Have you ever been taken in? 

Con artists have a way of making a person invest in a false reality.

One of the most frequently used con games that exists in mortgage lending is:  The Effective Interest Rate Presentation

Beware of effective interest rate proposals.

The typical scenario is that when the mortgage product is presented, it is supported by an amortization chart.  The bogus presentation is accompanied by a scenario whereby the borrower only adds a small additional amount to his/her monthly payment each time it is sent in, therby reducing the principal amount and unpaid balance.

If Mr and Mrs Borrower add a mere $100.00 each month to their mortgage, they will pay the mortgage off much sooner.

There is nothing wrong with this.  But the hook is:  If they person who is presenting the mortgage product conitinually refers to the “effective rate” rather than the APR (annual percentage rate) there is a good chance that the client is paying a higher rate than is available and in some cases is not “saving” but is really paying more.

Beware of the “effective interest rate” pitch, close scrutiny is helpful.

Questions and comments regarding effective interest rates will be answered promptly

By Jim Jump To Comments
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