REAL-ESTATE

LAW OF THE LAND: Low interest home loans – transformative or trouble?

Bill Martin
William L. Martin III

Back in 1975, I purchased my first house for $29,000 using an 8 percent loan from the credit union. I was upset because, just a few years earlier, some of my Air Force buddies purchased their houses for less AND their loans only carried a 4 percent interest rate. At the time, conventional wisdom held that the days of 4 percent home loans were over — forever. And within the next decade, interest rates shot up into the double digits. But then came the financial crisis, spurred in part by poorly underwritten home loans. And today, low interest home loans are back, but not all such home loans are equal.

Today, people look to refinance home loans in order to get a lower rate.  A low interest rate home loan can “transform” your life by freeing up extra capital to pay bills or just enjoy life. And nowadays, thanks to the Internet and sites such as Google, it is easy to compare rates offered by various mortgage lenders. However, some of those transformative loans are “more than meets the eyes.” 

Recently, the Federal Trade Commission (FTC) sued a “dot.com” company claiming that the company deceptively advertised variable rate loans as fixed rate loans. The company advertised fixed rate loans as low as 2.5 percent along with the low monthly payments such a low rate would generate. However, according to the FTC, the fine print, that few take the time to read, revealed that the fixed-rate loans were actually variable rate loans. And when the rates adjust, a transformative loan can suddenly turn into trouble as monthly payments may increase dramatically.

To protect yourself from deceptive advertising and to get the best rate possible, the FTC offers the following guidance to people shopping for a new loan: 1) check out multiple lenders; 2) compare rates and fees; 3) read lender reviews; 4) figure out how much of a down payment you can safely afford; 5) find out all of the costs involved in the loan; and 6) make sure you understand the loan amount, loan term, and type of loan offered by each lender.  Following this advice will allow you to make an educated comparison between the various mortgage products offered by the different lenders.

Finally, learn how to spot a deceptive ad. Ads that claim to have a “fixed rate” may fail to make clear that the rate is only “fixed” for an introductory period. Remember the old adage “If it sounds too good to be true, it probably is.”

Bill Martin is a former United States Air Force pilot and senior attorney for the Federal Deposit Insurance Corporation. He is currently a partner in the law firm of Keefe, Anchors & Gordon in Fort Walton Beach, Fla.