I got a mailer offering a very low refinance rate. Is it real, and how do I spot hidden points?

Why is the advertised rate so low?

Usually one or more of these:

• Points: you'd pay a big upfront fee (often thousands of dollars) to get that rate.
• Adjustable rate: the low rate lasts a few years and then can rise.
• Best-case assumptions: top credit score, lots of equity, a smaller loan, a primary home.
• A shorter term: a 15-year rate shown next to a 30-year payment example.

How do I spot hidden points or fees?

• Compare the rate to the APR. The APR includes most costs. A big gap between the two means fees or points.
• Read the fine print for "points," "adjustable," and the assumptions behind the example.
• Ask for a Loan Estimate. It's a standard form, so you can line it up against other offers. Look at page 2, Section A (origination charges and points).
• Check who sent it. Some mailers look like they're from your current lender or the government when they aren't.

How do I compare it fairly?

Get Loan Estimates from two or three lenders on the same day, for the same loan, and compare the total of the rate plus costs. Here's how to tell if your Loan Estimate is a good deal.

Example scenario (illustrative)

A homeowner in Denver gets a mailer with a rate a full point below what she's been quoted. The fine print shows it includes about two points upfront and assumes a 780 credit score and 40% equity. With her real numbers on a Loan Estimate, the offer is about the same as the quotes she already has, with more cash due at closing.

Our take

Mailers are built to make you call. That's fine, just compare with real numbers. Send me any offer you get, and I'll tell you honestly whether it beats ours, even if it does.