What’s going on in the world of money lending? Take a step back to quote of the most famous lenders of all time, a fictional Shakespeare character in The Merchant of Venice. “Shylock” lends the hero Antonio money so that he can woo the woman he’s in love with (the heiress Portia) enough to impress her. Instead of $20 in his pocket and finding a deal at Deseret Industries, he wants to get bigger bucks to buy designer clothes so that she won’t see him as a poor loser. Shylock, the local money lender, agrees to help him out and says:
Go with me to a notary, seal me there
Your single bond; and, in a merry sport,
If you repay me not on such a day,
In such a place, such sum or sums as are
Express’d in the condition, let the forfeit
Be nominated for an equal pound
Of your fair flesh, to be cut off and taken
In what part of your body pleaseth me. (1.3.17)
Of course, Antonio fails to pay his debt and the two characters wind up in court. The clever part of the play is not only the big question as to where Shylock might cut the pound of flesh from his guilty borrower but how legally Antonio gets out of losing a body part! This play and the characters have become so famous that over the last several centuries the name ‘Shylock’ has become synonymous with anyone who lends money at a high rate.
Mortgage rates have crawled are firmly in the 4-4.5% range for 30 year loans. What does that mean to you? You can’t buy as much of a home as you planned on six months ago. On a $200,000 loan, your payment would have gone from say $1100 to $1200. The average bank/Shylock out there wants to lend you money if your credit is good. They usually will give you about 1/3 of your monthly income as a rule of thumb towards your house payments. To buy a $200K house you’d have to have good credit and make $3600 a month without too many bills. The average sales price of a home currently for sale in Salt Lake City is $290,000-up a lot over last year’s values.
What’s a poor love struck buyer to do in order to get a good interest rate and not lose a pound of flesh in this lending market? First understand when Lucky Lupe’s House of Loans is offering mortgages at 2.5% in a 4.5% marketplace, there’s more to the story. The COST of the loan is what you should pay attention to-or the Annual Percentage Rate (APR). You hear the APR quoted at a million miles an hour or printed in tiny print after an auto ad. Second, learn to shop the APR’s and not the interest rates on loans. Manuel’s Mortgage Depot might offer you a 4.5% loan but his costs might be half of what Lucky Lupe will charge you. Too confusing? Find a lender who will sit down with you and explain this to you until you cry for mercy. Lender’s must BY LAW give you something called a ‘Good Faith Estimate’ when you apply for a loan. Take that quote from Lender A and then scan it to Lender B and see what B can do for you. If the quotes are too similar, find a Lender C to beat them both and save yourself more than a pound of flesh.