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Generic prices refer to the interest rates and costs of a mortgage when lenders advertise their loans online and in mainstream media.
Because for an advertisement to garner attention from consumers, the lowest possible prices are used in commercials for prospecting.
But while these ultra-attractive prices can seem very cheap to potential borrowers, the actual prices that borrower eventually pay are seldom the same as what was advertised.
This is because the prices being advertised are based on the assumption that a borrower meets certain criteria in order to qualify for such prices.
This could be because the generic price quote are meant for borrowers:
- With a certain credit score
- With a certain level of income
- Are only meant for refinancing while the borrower is buying
- Are only meant for loan to value below a certain threshold
It’s sort of like advertising a flagship smart phone for $299. But upon entering a store to buy that model, the customer realize that the $299 model is the entry level phone which he would never purchase. On top of that he has to be eligible to re-contract for a 2-year term. By picking up a phone with the required amount of disk space without re-contracting, he has to pay closer to $599.
In this example, $299 is the generic price meant to draw in the crowd. And $599 is the actual price.
But for a smart phone, a consumer can easily walk out of the store.
In the case of a home loan, walking out of a loan is easier said than done.
This is because a home buyer might not have enough time to finalize a new loan from another lender before closing date.
Moreover, the borrower might find the application process so tedious and tiring that he is unwilling to go ahead with another one all over again.
So when you see attractive mortgage rates in posters and adverts, don’t assume that you would be able to obtain them.