Mortgage rates at all time lows! Rates as low as 1.99%! Stop paying too much! We promise you the best rates! Guaranteed! Payments as low as $295! (Not an advertisement.)

It doesn't matter if you're shopping for a home loan or not you can't ignore the swarm of mortgage ads on the television or internet, in the newspaper or mail and even via fax.  Many of these ads are false, misleading, and even illegal.  Know what to look for when sifting through advertisements so you don't get caught up in a whirlwind of empty promises.

There are federal and state laws in place that govern advertisements in relation to credit offers.  The Truth In Lending Act is a U.S. Federal law that requires certain disclosures pertaining to costs and arrangements when dealing with consumer credit transactions.  The regulation that implements those laws is know as "Regulation Z" and is found in the Code of Federal Regulations.  Even though there are laws in place to protect the consumer from false advertising there is still room for advertisers to mislead shoppers.

Some of the buzz terms used in advertising such as "fixed rate" and "low payments" leave room for misguidance and deception. The phrase "fixed rate" does not tell you how long the rate is fixed.  It is common to see a 5 year adjustable rate mortgage advertised as a "fixed rate".  "Low payments" may refer to interest only payments where you pay only the interest every month and none of the principal balance of the loan.  Extremely low rates like "1.95%" or "2.99%" are usually rates for negative amortization loans in which you owe more on the principal balance every month than the original loan amount.

One of the most common mistakes in advertising is quoting and interest rate and not an APR (annual percentage rate).  By law if you quote a rate of finance or payment you must also quote an APR.  The APR takes into account the "cost of the credit" expressed as a yearly rate.  In other words it adds any points and fees to the quoted rate to give a true cost of the credit shown as a rate that is usually a little higher than the simple or periodic rate.  The APR allows you to make an "apples to apples" comparison between loans to see which would give you the lowest total cost. 

Not all advertisements require the disclosure of loan specifics, however, if they contain a "trigger" terms then they are subject to specific disclosures.  The trigger terms include down payment amount, payment amount (percentage or dollar), number of payments or period of repayment and amount of any finance charge.  If any of these factors are present in an ad it must include the amount or percentage of the down payment, terms of repayment including whether fixed or adjustable, and the APR.

One of the biggest mistakes made by consumers is to compare ads assuming all of the conditions are the same.  Many of the 30 year fixed rates advertised assume a 20% down payment, excellent credit, and a loan amount of $200,000 or more.  The advertised rate probably doesn't apply to a 100% loan with average credit on a $100,000 home.  Unfortunately, the barrage of advertisements does not help the consumer make a choice.  It is important to know exactly what you are looking for before you go mortgage shopping. 

I suggest talking with a trusted mortgage professional to educate yourself on what is available for your specific situation.  Do your homework and beware of deceptive mortgage ads.