Looking for a home? Beware of deceptive mortgage ads

Handshakes with customer after contract signature

Are you looking to purchase your dream home? Chances are you’ve seen a couple of mortgage ads promising low rates or payments. But just because an offer seems perfect, it doesn’t mean it can’t have some flaws 

In observance of National Consumer Protection Week, here is what you should know when shopping for a home loan.

 

Look for buzz words in advertisements. Words like “fixed rate”, “low rate” and “very low amounts” may all sound like a great deal. But advertisements that say “fixed” rate may not tell you how long it will be “fixed.” The rate may be fixed for an introductory period only, which could be as short as 30 days.

Are the offers advertising low payment rates or interest rates? Some ads may purposefully not disclose if their offer is talking about a payment or interest rate. According to the Federal Trade Commission, the interest rate is the rate used to calculate the amount of interest you will owe the lender each month. The payment rate is the rate used to calculate the amount of the payment you are obligated to make each month. Be sure to read the terms and conditions closely as some offers advertise a low payment rate without telling you that it applies only during an introductory period. Other offers have the payment rate less than the interest rate, meaning you won’t be covering the interest that is due.  This is called “negative amortization.”

Look over offers that advertise “low payment amounts”. An offer that states low payments may not tell you the loan is interest only. This means you pay only the amount of interest accrued each month, while no payments go towards the principal. Your payment may go up after an introductory period, so that you would be paying down some of the principal – or you may end up owing a “balloon” payment, a lump sum usually due at the end of a loan.

For more helpful tips, visit the Consumer Financial Protection Bureau.

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