How to Spot a Deceptive Mortgage Ad
When an advertisement for a new home offers a low mortgage and no down payment, you may be thinking it’s a deal that’s too good to be true.
As a matter of fact, it can be. It also may violate the law. Such was the case with Heritage Homes Group, a home builder in Jamison, Pennsylvania, that since August 2011 was offering a mortgage of $1,198 a month with no money down for a home. To make the advertisement for the deal more visually appealing, the company added the words “ZIP. ZERO. NADA.” on the top of the advertisement.
Those words definitely caught the eye of the Federal Trade Commission, which charged Heritage Homes Group with failing to fully disclose crucial information like the annual percentage rate (APR) and other mortgage information. The company settled with the FTC, and the court imposed a $650,000 suspended judgement.
Heritage Homes Group settled with the FTC without admitting guilt, but the case serves as a valuable lesson. There are still advertisements with catchy words, such as “free” and “zero,” that withhold crucial information for the consumer and run afoul of federal law.
“These deceptive mortgage advertisements are basically a false promise,” says Carole Reynolds, senior attorney for the FTC.
To safeguard yourself from falling victim to a deceptive mortgage advertisement, Reynolds advises customers to ask the right questions: Is there a deposit required? Is the advertisement calling the deposit something else? Are there any fees being disclosed? Are they claiming that there are “no hidden fees?”
“You need to know what the true terms of the deal are, and not just be misled by something that looks like a good deal when it really isn’t,” says Reynolds.
Here are some terms and facts that the FTC advises you to look out for when you come across a mortgage ad that appears to be too good to be true.
“Zero Down” or “Free”
Any time you see the word “zero” on a mortgage ad — like “zero down payment” — you should be cautious, says Reynolds. The same goes for the word “free.” The words catch your attention, but can be deceptive.
“People need to look further into the ad, and I would tend not to immediately believe that this is all ‘free,’” she says.
A “Fixed” Rate
Pairing “fixed” with the term “rate” can wow the customer, says Reynolds.
But information like the duration of the rate may not be entirely clear. For instance, the rate may only apply to an introductory period of 30 days or more.
Sometimes what the “rate” is actually referring to — whether it’s the interest rate or the “payment” rate — can be muddled, Reynolds says.
Companies can advertise a low rate, but one question to ask is: how long will it last in your mortgage? It’s important to find out.
To figure out the true nature of the “rates” being offered, Reynolds advises asking about the duration of the loan, as well as whether the rate or the payment is fixed for the full duration of the loan.
Use of Patriotic Logos
Deceptive mortgage ads can feature logos and phrases that make it appear that the government is offering the deals.
“Eagles and the Statue of Liberty, those are real popular ones,” says Reynolds. Including these logos on direct mail marketing materials can mislead the customer into believing they are receiving a letter from a government agency.
Other things to look out for, she advises, are advertisements and direct mailings that urge you to respond within a short period of time — like seven days or less — or risk losing the mortgage offer.
“We see that in some instances where it’s basically false,” says Reynolds.
A Buried Annual Percentage Rate
The APR is an important way to compare and contrast the mortgage offers from different lenders. Sometimes ads may bury the APR for the loan in the fine print of the ad, or it may not even be on the ad at all. Look for the APR for the loan, as it can help you find the right loan for you, says Reynolds.
“You need to shop and compare quite a few offers first, which is hard, because if you see an offer that looks really good, you may have an inclination to follow up on it,” she says.
In doing so, says Reynolds, knowing how to scrutinize mortgage ads — whether they may be deceptive or not — will help you keep your budget and your sanity in check.