How can mortgage companies advertise mortgage rates that aren't accurate?

The answer is somewhat complex. Many companies advertise the best possible rate they can offer on a particular program, say the 30-year fixed mortgage. First of all, they will typically advertise a rate that does not have any pricing adjustments. For example, the scenario they use will be for a purchase loan of $200K+ with a 20-25% down payment, with impounds for property taxes and insurance included in the payment, for someone with a middle credit score of 750 or higher, for a single family detached home that is owner-occupied. This is perfectly legal, although most people aren’t likely to fit this scenario. Where it gets questionable is when the rate/fee combo they advertise would net them less than they would ever actually quote someone who inquired with them. In this example, a company advertises a rate of 4.875% with no origination or discount points. This would only net them .250% of revenue, which would likely not even cover the costs of doing the loan. Then, when someone inquires, they quote a higher rate/fee structure, blaming non-existent pricing adjustments or changing market conditions on the discrepency. This, at best, is misleading, but very hard for regulatory agencies to track or prove. The best you can really do is to tell them that you will not be doing business with them because you feel that if they aren’t forthcoming when trying to gain your business, you can’t trust them to deal with you honestly during the process, either. The problem is… if the strategy is making the phone ring and they still capture a fair amount of the business after quoting higher rates, they’re not likely to stop. Another common tactic is to advertise a low interest rate for a “fixed-rate mortgage”. What they don’t specify (or is only disclosed in the small print or in rapid fire at the end of an audio ad) is that it is for a 10-year fixed rate loan, and not a 30-year, which is what they know most people assume it’s for. While rates for the 10-year ARE very low, most people aren’t in a position to reduce their term quite that much.

If you think a company is being extremely irresponsible and misleading, you can file a complaint with the appropriate agency in your state and ask them to investigate. The bottom line: Take advertised interest rates with a grain of salt and ultimately make your decision based on specific, detailed quotes/estimates that you receive in writing.

Dexter PNC Mortgage