Beware misleading loan terms HERE TO HELP
FTC warns about home-refinancing ads that promise bargains but deliver trouble
They arrive in the mail all the time and they pop up on your computer screen — those home-refinancing ads that promise rockbottom rates and easy approval.
They’re tempting, but they can also be very misleading.
The Federal Trade Commission warns consumers of red flags such as “guaranteed approval” or “low fixed rates” with no details, or ads that look as if they’re from a government agency.
The FTC also wants you to be alert to the buzzwords that should trigger follow-up questions, as well as information to insist on after you’ve read an ad.
» A low “fixed” rate. Ads that tout a “fixed” rate may not tell you how long it will be “fixed.” The rate may be fixed for an introductory period only, and that can be as short as 30 days. When you shop for CALL 12 FOR ACTION a mortgage, you need to know when and how your rate, and payments, can change.
» Very low rates. Are the ads talking about a “payment” rate or the interest rate? This important detail may be buried in the fine print, if it’s there at all. 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. Some offers advertise a low payment rate without telling you that it applies only during an introductory period. What’s more, if the payment rate is less than the interest rate, you won’t be covering the interest due. This is called “negative amortization.” It means that your loan balance is actually increasing because you’re not paying all the interest that comes due, and the lender is adding the unpaid interest to the balance you owe.
» Very low payment amounts. Ads quoting a very low payment amount probably aren’t telling the whole story. For example, the offer might be for an interest-only loan, where you pay only the amount of interest accrued each month. Although the low payment amount may be tempting, eventually you will have to pay off 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, Problem with a business? Call us. Our trained volunteers take phone calls from 11 a.m. to 1 p.m. Monday to Friday at 602-260-1212. Or you can submit your complaint online at call12.azcentral.com. Call 12 for Action’s consumer-savings total so far in 2013. a lump sum usually due at the end of a loan. You must come up with the money when a balloon payment is due. If you can’t, you may need another loan, which, in turn, means new closing costs and potentially points and fees. And if housing prices are falling, you might not be able to refinance to lower your payments.
says the best way to get a good loan from a legit lender is to buff up your credit score by clearing up black marks with the three credit bureaus and paying off as much debt as you can. It’s also worth checking makinghomeaffordable.gov.