Lies to Look Out For
When shopping for a mortgage, borrowers must be very careful.
Brokers and lenders often have an incentive to lie in order
to make more money, so you must be on the lookout for these
The first lie you should be aware of is a false statement
that there is no prepayment penalty. Prepayment penalties
are financial penalties imposed when you attempt to pay off
your mortgage early, usually through refinancing. It is true
that some borrowers will later claim they never agreed to
a penalty when, in fact, they actually did. However, brokers
also have an incentive to lie about a prepayment penalty and
collect an additional half a point or full point for themselves.
The Truth in Lending (TIL) disclosure form indicates whether
there is a penalty or not, but many borrowers don’t
read it. Make sure to check your TIL to confirm you do not
have a prepayment penalty.
Another common lie brokers tell is that the rate is locked.
Brokers have an incentive to do so because longer locks come
at a cost of more points. Brokers will wait to lock and keep
the extra lock fee for themselves. They justify this by saying
they assume the risk of rising interest rates, rather than
the borrower. This works as long as rates stay relatively
However, if rates spike, borrowers could be left in the position
of either being stuck with a higher rate or having to cancel
the transaction. This is why borrowers should insist on a
lock commitment letter from the lender to the borrower.
Loan providers also sometimes lie about market price on the
day of the lock. Don’t accept the price blindly. Monitor
changes in market price between the day you commit to the
loan and the day you lock to make sure you aren’t getting
You should also be wary of lenders who insist you should
take an FHA mortgage. Often they specialize in FHA loans and
don’t want to lose your business, or get a higher fee
on FHA loans. The rule of thumb is if you can afford to put
five percent down and have good credit, don’t let anyone
steer you to an FHA without considering other alternatives.