I'm reading about Household International's fraudulent mortgage interest rate. According to Michael Lewis, Household disguised a 15 year, fixed-rate loan as a thirty-year loan. The sales would offer to replace a client's existing $67,300 mortgage (8.5% interest rate) with a bigger but seemingly cheaper one: $86,300 at an “effective rate” of 7.6%. The sales pitch goes something like this: “If I can put together a loan that pays out like a 7.579%-a-year loan, but has a total term of 18.63 years … would you be interested?”
Can someone explain how exactly does the trick work? How did the sales misrepresent the 7.6% interest rate, which is seemingly lower than the client's existing 8.5% interest rate?