How To Spot A Too Good To Be True Mortgage Offer

People look for mortgages to help purchase a home or to refinance an existing loan. While searching for the right loan, borrowers may easily be attracted to ads that promise low repayments and competitive interest rates. 

Some ads attempt to appear as a legitimate mortgage provider or as a government department. Always be cautious of mortgage ads that could be deceptive.

These ads are misleading because they don’t fully disclose the terms of the deal, as required by law.

When sourcing a loan, it’s vital to understand all the relevant terms and conditions, beginning with the advertisement itself.

What To Look Out For

To help determine if a mortgage loan ad is coming from an honest source, here are some keywords to pay careful attention to. 

• Low Fixed Rates: A company that claims to provide fixed rates will probably not state the rate period. Often, the rate is fixed for a short length of time and can be as low as 30 days. When considering a mortgage, you must be aware of the rates throughout its entire term
• Very Low Rates: This represents an especially vague claim that doesn’t specify which rates are low. Is it the interest rate or the APR? The APR involves all the costs associated with the mortgage including interest. Such rates may only apply for an introductory period, necessitating a further look
• Low Payments: Mortgage advertising that makes this claim is probably withholding information. The loan may be interest only, meaning that the principal isn’t paid off each month. At some point, that amount will have to be repaid. Low payments may be for only a limited period, which leaves you having to pay off a lump sum at the end of the loan period. Failure to pay this “balloon” payment may require further loans and even more debt
• Teaser Rates: These promotional rates are almost always for a limited period and will be followed by much higher rates. Failure to fully check the terms may lead to a shock further down the line
• Official Lookalikes: If you receive information regarding your mortgage, don’t assume it has arrived from your lender. It may be a separate company looking for business. Public records allow them to obtain such information. Be careful before responding and be aware of who you’re conversing with

Be wary of companies that use official symbols to appear more trustworthy. For example, some may use government logos to present the illusion of being a government department. Contact the relevant agency to check the ad’s authenticity.

What You Need To Know

Here are two most important variables that are absolutely crucial to your understanding of a mortgage loan and its related costs.

The APR

The APR, or annual percentage rate, is highly important when comparing offers from lenders. The APR is the rate paid annually on top of the original loan amount. It is higher than the simple interest rate because it’s a total amount for all additional charges on loans, such as processing fees and points. By including all of the extra fees, it makes comparing products much more simple. 

Always be certain what the APR is on a mortgage. Many ads strive to not make this information visible. Advertisements may hide the rate within the fine print or the depths of their website. Only proceed with a loan after determining its exact rate. 

Important Payment Information

Mortgage advertisements that fail to mention all the relevant information demand that you ask the following: 

• What are my monthly payments? Is the total fixed or will it vary over time? If so, by how much? You should be clear on what the payments will be for the entire length of the loan if is a fixed rate or how and when an adjustable rate mortgage changes
• Does the monthly payment include an escrow payment? This would cover insurance and property taxes. You may have to pay these costs yourself, in which case an estimate should be requested
• What is the length of the loan and how many payments will it take to repay? You need to be aware of any “balloon payments” for interest-only loan types
• Are there penalties for early payment or refinancing the loan? If so, all the relevant charges should be made clear, as should any conditions under which they would be triggered

Bottom Line

Mortgage ads with offers that seem too good to be true usually are. The fine print will often hide additional charges and hide that the low rates are time limited.

The ads themselves may not even be from your current lender, so always read the terms in full before considering such deals.