How does quicken loans offer such low payments for mortgage?

Question

I see the commericials online and on tv and they offer such low payments for their home loans. I just want to know how does that work? Is it worth it? Will I be paying way more interest? Has anyone here gotten one of those loans?

Thank You;
K

Answer 1

They advertise option arm loans with a 1 month teaser rate and other loans similar. The caveat is that once a typical loan is built the adders to rate such as cash out, loan to value, credit score, property type, occupancy type, and fixed term before adjustable are all going to change the real rate. Think of it this way, if a lender could offer a loan below market rate that benefited the borrower only, how could they afford the millions spent weekly advertising it. Why they can advertise the rate is because a situation does exist somewhere in their disclaimer that could get the loan they speak of. Quicken loans and several others such as DiTech sometimes keep the loan to make up some of the interest themselves as well. When you do close your loan with these type of lenders it is often an attorney that will come sign you and they arent there to represent you and can only sign you. You should use a bank, direct lender, or mortgage broker and have an explanation provided for each document, and all your questions answered before signing.

Answer 2

The payment is low because you are not paying any principal, and you aren't even paying off the interest. It's called negative amortization. Simply put, you are paying less than the interest that's being charged every month. So, your mortgage balance goes UP, every month.

Needless to say, a loan that goes up every month is riskier than a loan that is getting paid down every month. Therefore, you will be paying a significantly higher interest rate on these loans, even though your payment is artificially low.

In most cases, within 5 years, you will owe upwards of 110-115% of what you borrowed originally.

So YES, you WILL pay more in interest. These loans are not appropriate for 99.99% of the population, and Quicken is doing no one but themselves a favor by selling this product so heavily. The Federal Reserve considers these loans to be financial time bombs.

Answer 3

I haven't seen Quicken specifically but it really can only come from a few areas.

1. Their interest rate is really really low (unlikely)
2. Their term of the loan is really long
3. They have what is called a balloon payment at the end. For example you borrow 125,000. Over 10 years you repay 50,000 or 600 per month, at the end of 10 years you need to repay or refinance the remaining 75,000 (which you have been paying interest on too)

Answer 4

They are only quoting Principal and Interest and they cannot know what the taxes and insurance will be. Also they are quoting for excellent borrowers of which there are a very few.

Answer 5

those are just appetizers. what I mean is they give you that quote then give you the real quote later once they get you in their company. it is called bait and switch