You could wind up paying more than you need to for a mortgage thanks to all-too-common predatory lending practices. A new report from Tomo Mortgage — which recently launched TrueRate, a free AI-powered tool that shows the real cost of mortgages — found that inflated rates, hidden fees and misleading pricing will cost U.S. homebuyers $11 billion in 2025.
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To ensure you’re getting the best possible terms for your home loan, keep an eye out for these key signs that your mortgage lender is ripping you off.
You Have To Pay Fees To Access Low Rates
Some lenders will use “point traps” to get you to pay more than you need to for your home loan.
“Point traps are a deceptive tactic where lenders advertise seemingly low interest rates but require borrowers to pay exorbitant upfront fees, known as discount points, to obtain that rate,” said Will Begeny, VP of TrueRate, Tomo Mortgage.
“The ‘trap’ springs when borrowers, often first-time homebuyers or those under time pressure, focus solely on the attractive interest rate without fully understanding or calculating the significant added cost of these points.”
To avoid point traps, it’s important to be an educated consumer.
“Signs that a lender is deceiving you with point traps can vary, but the most common ones are extremely low advertised rates, or vague language like ‘as low as,’ which is a phrase often used to mask the fact that the lowest advertised rate is only achievable by paying a huge number of points,” Begeny said. “Borrowers should also look out for a large discrepancy between the interest rate and the APR, or high loan origination fees.”
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The Lender Doesn’t Disclose All of Its Closing Fees Upfront
Some lenders won’t give you the full picture of the price you’ll have to pay for a loan until you get to closing.
“‘Sleight-of-estimates’ refers to the tactic some lenders use to make their loan offer appear more attractive by underestimating certain closing costs on the loan estimate,” Begeny said. “This misdirection focuses the borrower’s attention on a seemingly lower estimated cash to close figure, while the lender’s own fees in the origination charges section might be higher.
“The borrower only realizes the true cost at the closing table, by which point it’s often too late to switch lenders without significant delays and potential additional costs,” he continued. “Lenders consistently use this type of complex jargon to hide the real costs of a mortgage, leaving many borrowers feeling overwhelmed and cautious to apply.”
To avoid falling victim to sleight-of-estimates, get loan estimates from multiple lenders at the same day and time.
The Lender Is Vague About the Fees They Are Charging You
Mortgage loans often do come with fees that are legitimate and cover needed services, but some lenders will try to pass off additional unnecessary fees as being “standard.”
“Borrowers should be particularly cautious of fees that are vaguely described or seem duplicative,” Begeny said. “Some ‘standard’ fees that borrowers should keep an eye out for are any administrative, processing, underwriting or document preparation fees listed as separate charges. These fees often overlap and can be bundled into a single, more reasonable origination fee. Lenders might itemize these fees to make the total cost seem less daunting, but they essentially cover the lender’s operational costs.
“Other lenders may even charge a ‘satisfaction fee,’ which is an unusual and unwarranted fee for the lender simply doing their job,” he continued. “The key is to question every fee and understand its purpose. A transparent lender should be able to justify all charges.”
You’re Promised ‘Free’ Refinancing That Isn’t Actually Free
If a lender offers you “free refinancing,” this doesn’t automatically mean the loan is a good deal.
“Some lenders lure borrowers in with the promise of a ‘free refinance’ if interest rates drop. However, the costs are often hidden in a higher initial interest rate or inflated fees during the refinance process itself,” Begeny said. “Borrowers should focus on getting the best possible rate and terms upfront rather than relying on a potentially costly future refinance.”
The Lender Discourages Comparison Shopping
“Some lenders may try to discourage borrowers from getting quotes from other lenders by claiming their offer is the absolute best or by creating a sense of urgency,” Begeny said.
Never take a lender for their word — do your own research using online comparison tools or calling around for available loan terms.
The Lender Doesn’t Give You a Total Estimate
A mortgage lender may try to get your business by flaunting attractive-seeming terms, without actually disclosing the total cost of the loan.
“Some less scrupulous lenders may delay providing a loan estimate, hoping to keep the borrower engaged until they are too far into the process to easily switch,” Begeny said. “Borrowers should insist on receiving a loan estimate as early as possible in the process, and even then, they should still shop around.”
The Loan Terms Are Full of Confusing Jargon
Taking out a home loan can be a daunting process, but you should know exactly what you are agreeing to before signing on the dotted line.
“The mortgage industry is rife with complex terminology,” Begeny said. “Some lenders intentionally use jargon and confusing calculations to obscure the true cost of the loan. Borrowers should arm themselves with knowledge, ask for clear explanations in plain language and not hesitate to seek independent advice if needed.”
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Source
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Tomo Mortgage
This article originally appeared on GOBankingRates.com: 7 Key Signs Your Mortgage Lender Is Ripping You Off
