The mortgage offer in the mail: Should you accept?

“Old school” mortgage offers: why bother?

We live in the Internet era, and yet it’s common to get a mortgage offer by mail. Why do you get such offers, and are they any good? The answers may be surprising.

The mortgage offer and targeted marketing

“You have zero privacy,” said Scott McNealy in 1999 when he was the chief executive officer with Sun Microsystems. “Get over it.”

It used to be that direct mail – billions of pieces of advertising sent out each year – were largely based on such things as property records and magazine subscriptions. If you subscribed to a fishing magazine you might expect a lot of mail from people who sell rods and boats.

Now every Internet click and visit is recorded somewhere. Pull together several thousand data points and it becomes fairly easy to identify prospects for virtually any product or service, including mortgage borrowing. Whatever privacy existed in McNealy’s 1999 is now largely gone.

Synthetic rates in printed newspapers

Mailers – long before the Internet caught on – understood the value of targeted marketing. Their goal is to have the most sales at the lowest cost and the key to this process is targeted marketing.

Why is targeted marketing effective? Several reasons stand out.

First, it’s cheap. Marketers mail only to likely prospects, not huge numbers of recipients. It’s the difference between a rifle and a shotgun.

Second, it works. Advertisers can readily relate sales to the cost of ad mail.

How do I get today's "real" mortgage rates?

Third, recipients get less mail. This happens because marketers are not sending pitches to unlikely prospects.

You don’t need a billion-dollar ad budget to compete. A real estate broker or lender can send letters to every home on a given street rather than pay for a TV or radio ad that will reaches hundreds of thousands people, most of whom have no possible interest in real estate services.

Internet marketing is simply an extension of targeted mail. The big difference is far more data points plus pay-for-performance pricing – no click, no cost.

The mortgage offer and your credit score

If you’ve gotten a “pre-screened” or “pre-approved” mortgage offer in the mail, it means various data points make you attractive to individual lenders.

“The unsolicited calls, emails, and letters about competing offers often are called “pre-screened” or “pre-approved” offers of credit,” explains the Federal Trade Commission.

How do mortgage lenders come up with your rate quote?

“They are based on information in your credit report that suggests you meet criteria set by the creditor making the offer – for example, you live in a certain ZIP code, you have a certain number of credit cards, or you have a certain credit score.

Credit bureaus and other consumer reporting companies sell lists of consumers who meet the criteria to insurance companies, lenders, and other creditors.”

Lenders get this information from various sources including data brokers, credit card companies, and credit reporting agencies. Since you did not request this information, these are “soft” inquiries that do not reduce your credit score.

So now you know how you were chosen, but is an unsolicited mortgage offer worth considering?

The mortgage offer and fine print

When you review the offer, understand that lenders tend to advertise the best rate they can – one that may only be available if you put 30 percent down and ha stratospheric credit score. Maybe the offer is $250,000 at 3.75 percent. That’s in line with the best of today’s rates, but check the fine print.

The lender must disclose by law the existence of features like balloon payments, interest-only payments, or adjustable rates. With a balloon payment, you may get a low payment, but in five or ten years there may be a massive one-time pay-off.

Mortgage disclosures: Do you have to read EVERYTHING?

If the offer mentions a monthly payment, what does it include? Mortgage principal and interest? Principal and interest plus taxes and insurance? A payment that does not even cover the interest owed?

The ad must explain what the payment includes to be in compliance with lending laws.

There is nothing illegal about low monthly payments or tiny (adjustable) interest rates as long as it’s clear that these features are part of the loan.

The mortgage offer and red flags

Some lending advertisements violate mortgage lending regulations because they are intentionally deceptive. If you see any of these red flags, stay away from the company and don’t give it any private information.

Your first consideration is who sent the mail? It may mention the name of your current lender, but the mailer may come from a different company.

Beware of mail which uses the names and symbols of federal agencies – no one has an exclusive deal with the government. Also, watch out for mail that sort of looks like an official government letter, like something you might get from the IRS.

Look out for so-called “fixed” rates. “Ads that tout a ‘fixed’ rate may not tell you how long it will be ‘fixed,’” says the Federal Trade Commission.

8 things your mortgage lender should disclose to you

“The rate may be fixed for an introductory period only, and that can be as short as 30 days. When you shop for a mortgage, you need to know when and how your rate, and payments, can change.”

If an offer is too good to be true – for instance, 30-year fixed rates today are near four percent, so if you see one at 2.5 percent — look closer.

Look out for low payment claims. If the mailer says you can borrow $275,000 and pay just $1,000 per month, you need to ask how that’s possible in today’s rate environment.

What are today’s mortgage rates?

Can you get attractive mortgage offers in the mail? Yes, especially at today’s low rates. But you have to review each offer with care, just as you would with any financing proposal. As the old expression goes, trust – but verify.

And how do you know the deal is good? By comparing it with offers from other lenders — easy to do right here.