When you’re shopping for a new home, especially if you already own one, you might naturally think to start with your current mortgage servicer. After all, they already have your information and seem like the obvious choice. But this approach could end up costing you thousands of dollars.

Many lenders use attractive marketing tactics like temporary buydowns and “free refinances” to hook borrowers. While these offers sound appealing, they often hide higher rates and unexpected closing costs that can dramatically increase what you pay. Here’s a real-world example of how these tactics work and what you need to know to protect yourself.

Want to see the full explanation? Watch the original video on YouTube for the complete story.

What Is a Temporary Buydown Mortgage?

A temporary buydown is a financing arrangement where your interest rate is reduced for a specific period, typically the first year of your loan. Here’s how it works:

Let’s say the actual interest rate on your mortgage is 6.5%. With a one-year temporary buydown, your rate might be reduced to 5.5% for the first 12 months. This means you’ll have lower monthly payments during that initial year, but after 12 months, your rate jumps back up to the full 6.5%.

Lenders often market this by saying “we’ll pay for this buydown for you,” making it sound like they’re giving you a gift. But as you’ll see, nothing in the mortgage world is truly free.

The Myth of the “Free Refinance”

One of the most common questions mortgage professionals hear is: “Do you offer free refinances?” It’s a fair question, but here’s the reality – there’s no such thing as a truly free refinance.

The Real Costs of Any Mortgage Transaction:

• Underwriting fees
• Processing fees
• Credit reports
• Appraisal costs
• Title company fees
• Administrative expenses

These are legitimate costs of doing business. No mortgage company can simply wave away fees charged by third parties like appraisers or title companies. When a lender advertises a “free refinance,” they’re not eliminating these costs – they’re building them into your interest rate.

How “Free” Refinances Actually Work: The lender gives you a higher interest rate, which generates enough additional revenue over the life of your loan to cover the closing costs. You’re still paying for everything; it’s just hidden in your monthly payment over 15-30 years instead of upfront.

Red Flags Hidden in the Fine Print

When lenders offer temporary buydowns with “free refinance” promises, there are several warning signs to watch for:

“You May Not Be Able to Refinance” Clauses: lenders include this language legally to protect themselves. If interest rates don’t drop and you can’t actually refinance, they’ve covered themselves from potential lawsuits. This clause should make you question how “guaranteed” that future refinance really is.

Above-Market Starting Rates, even with the temporary buydown, your base interest rate might be higher than current market rates. This means you’re not getting as good a deal as it appears.

Inflated Closing Costs Some lenders pad closing costs with excessive fees, knowing many borrowers focus only on the monthly payment rather than total costs.

A Real Client Example: How This Plays Out

A recent situation perfectly illustrates these tactics in action. A real estate agent’s client was working with their current mortgage servicer for a new home purchase. Here’s what the lender offered:

The Pitch:

• One-year temporary buydown (6.5% rate reduced to 5.5% for year one)
• “We’ll pay for the buydown for you”
• Promise of a “free refinance” after the first year

The Reality: When the agent did their due diligence, they discovered:

• The initial 6.5% rate was actually half a percent higher than current market rates
• The closing costs exceeded $20,000, with no clear explanation
• When questioned about the fees, the loan officer couldn’t explain how they arrived at such high costs

This is a massive red flag. If a loan officer can’t explain specific fees they’re charging, especially when they claim to be an expert, it’s time to find a different lender.

The Outcome: The client sought a second opinion and ended up saving $30,000 compared to what they would have paid with their original lender. That’s not a small difference – that’s life-changing money.

<iframe src=”https://mortgagemaestroinsights.substack.com/embed” width=”480″ height=”320″ style=”border:1px solid #EEE; background:white;” frameborder=”0″ scrolling=”no”></iframe>

How to Protect Yourself as a Homebuyer

Ask Detailed Questions 

Don’t accept vague explanations about fees or rates. A qualified loan officer should be able to explain every line item on your loan estimate. If they can’t, that’s a red flag.

Get Multiple Opinions 

Even if you’re comfortable with your current mortgage servicer, get quotes from at least 2-3 other lenders. This gives you leverage and helps you spot inflated rates or fees.

Work with Local Experts 

Find a local mortgage broker or lender with a strong reputation in your area. Use available tools to research lenders and read reviews from past clients.

Focus on Total Costs, Not Just Monthly Payments

 Lenders often focus on monthly payment amounts because they sound more manageable. Always look at the total cost over the life of the loan, including all fees and the true interest rate after any temporary buydowns expire.

Read the Fine Print

Pay special attention to clauses about future refinancing options and rate adjustment periods. If something seems too good to be true, it probably is.

Why Local Expertise Matters

The mortgage industry can be complex, and marketing tactics can be confusing even for experienced homebuyers. Working with a local expert who has a proven track record can save you significant money and stress.

Look for mortgage professionals who:

• Can clearly explain all costs and fees
• Have strong local references and reviews
• Take time to compare multiple options for you
• Are transparent about how they’re compensated

Final Thoughts

The mortgage industry is full of marketing tactics designed to attract borrowers, but not all offers are in your best interest. Temporary buydowns and “free refinances” might sound appealing, but they often come with hidden costs that can add up to tens of thousands of dollars.

Remember: nothing is truly free in the mortgage world. Every cost is accounted for somewhere, whether upfront or built into your rate. The key is working with professionals who are transparent about these costs and help you understand exactly what you’re paying for.

When you’re shopping for a mortgage, take the time to get multiple opinions and ask detailed questions. A few hours of extra research could save you thousands of dollars at closing and over the life of your loan.

Don’t let confusing marketing tactics cost you thousands of dollars. If you’re shopping for a new home or considering a refinance, make sure you understand every detail of your loan before signing.

Mortgage Maestro specializes in providing transparent, honest guidance to help you navigate these complex decisions. We’ll help you compare all your options and avoid costly mistakes that could impact your financial future.

Schedule a consultation with Mortgage Maestro today to get the expert guidance you deserve.

For ongoing mortgage insights and tips like these, subscribe to Mortgage Maestro Insights on Substack.

Mortgage Maestro Group – NMLS #1838215