Don’t Be Fooled by Mortgage “Discounts”
Common Scams and How to Protect Yourself
Imagine you’re shopping for a mortgage and a lender promises you $500 off your closing costs—just for choosing them. Sounds great, right? Unfortunately, that tempting offer often means you’ll end up paying more in the long run. Many so-called “discounts” are just tactics to boost the lender’s profit, not genuine ways to save you money.
Whether you’re a first-time homebuyer, a current homeowner looking to refinance, or a seller who wants to help others, recognizing these common scams empowers you to make smarter decisions. Below, we’ll cover seven common scenarios where lenders use “discounts” or “credits” to appear generous but actually increase your costs behind the scenes.
1. The “$500 Credit” or “Free Closing Cost” Trick
What This Looks Like
A lender says, “We’ll give you $500 off your closing costs!” and your realtor might even suggest it as a perk.
What’s Really Going On
The lender isn’t taking a loss. They often raise your interest rate so they can “credit” you money that’s simply coming from that higher rate. While you pay less at closing, you end up with higher monthly payments—costing you more in the long run.
How to Protect Yourself
Compare the overall cost of the loan with and without the “credit.”
Ask the lender to show you the interest rate without the credit.
If the rate is lower without it, you’ve found the hidden cost.
2. The “We’ll Waive Your Appraisal Fee” or “No Lender Fee” Gambit
What This Looks Like
Promises of free appraisals, waived lender fees, or other “cost-free” perks.
What’s Really Going On
Similar to the $500 credit trick, the lender raises another part of the loan—usually the interest rate—to offset what you’re “saving” upfront. You avoid a one-time fee at closing, but pay more in interest every month, which adds up to much more than the original fee.
How to Protect Yourself
Ask for a detailed breakdown of costs with and without the “waiver.”
Decide if a slightly higher monthly payment is worth the short-term savings.
3. Builder or Developer “Incentives”
What This Looks Like
When buying a new construction home, the builder’s preferred lender offers “special credits” or “discounts” if you use their financing.
What’s Really Going On
Because of the builder-lender relationship, pricing can be manipulated to appear more attractive. The so-called credit might be baked into a higher interest rate or hidden in the home’s price. With costs spread across various parts of the deal, it’s easy to overlook where you’re actually paying more.
How to Protect Yourself
Always get an independent quote from an outside lender for the same loan type.
Compare the quotes to see if the builder’s “deal” really saves you money or just looks good on paper.
4. “Preferred Customer” or “Loyalty” Discounts
What This Looks Like
Your bank says, “Since you’re already a client, we’ll give you a special, lower rate!” It feels like a reward for your loyalty.
What’s Really Going On
Often, the “discounted” rate is just the normal market rate repackaged as a perk. They might start you at a higher rate, then “discount” it to what everyone else is already paying.
How to Protect Yourself
Research current market rates online.
Get quotes from at least one other lender.
If the “discount” doesn’t beat the competition, it’s not a real perk.
5. The “No Fine Print” Red Flag
What This Looks Like
An offer seems too good to be true with no disclosures in writing. The lender insists it’s straightforward but doesn’t provide detailed information.
What’s Really Going On
A lack of written details often means the lender isn’t being transparent. If they won’t explain how the offer affects your interest rate or closing costs, you’re probably paying more somewhere else.
How to Protect Yourself
Always ask for written explanations.
If they refuse or avoid details, it’s a serious warning sign.
Look for another lender who provides clear, written disclosures.
6. Rate Renegotiations That Aren’t Really “Free”
What This Looks Like
A lender claims, “If rates drop after you lock, we’ll renegotiate your rate at no extra cost!”
What’s Really Going On
Truly free renegotiations are rare. The lender often offsets the lower rate by adding fees elsewhere or adjusting other costs, so you may not enjoy the full benefit of the market drop.
How to Protect Yourself
If the market improves, get a competing quote before renegotiating.
Compare the new offer to see if it matches current market rates or if it’s a half-measure.
7. Corporate or Employment-Based Mortgage Perks
What This Looks Like
Your employer partners with a lender who promises special fee waivers or reduced rates for employees.
What’s Really Going On
Sometimes these “employee discounts” are just standard market rates or even higher. The partnership can make you feel secure, discouraging you from shopping around.
How to Protect Yourself
Don’t assume it’s the best deal.
Compare at least two other lenders.
If the employee deal doesn’t beat the competition, it’s not a real discount.
Why You Should Care
Even a slight bump in your interest rate can cost you thousands of dollars over the life of your loan. By recognizing these seven scenarios, you can avoid offers that only seem like savings but ultimately drain your wallet. The mortgage world can be complex, but knowing these tactics helps you ask the right questions, compare offers with confidence, and secure a loan that truly benefits you.
How to Protect Yourself in Every Scenario
Read the Details
Always review any written disclaimers, rate sheets, and loan estimates. If something isn’t clear, keep asking until you fully understand.
Compare Lenders
This is your best defense. Get quotes from at least reputable lenders. If a lender’s “discounted” offer isn’t competitive once you compare everything, it’s not an actual savings.
Ignore Online Rates
Mortgage lenders do exist online. Be careful of generic rate quotes. There is another book on the tricks and scams for posted rates, so remember, online lenders want to attract interest and eyes with low rates that may exist.
Consider the Long-Term Impact
A small credit now might lead to higher monthly payments for years. Use online calculators to see how a slight rate increase affects your total payment over time.
Work with a Trusted Professional
Partner with a mortgage advisor who’s transparent, experienced, and focused on your best interests. They can spot these tricks before you sign anything.
Who Benefits from This Knowledge?
Buyers: Spot when a “perk” locks you into a more expensive loan.
Sellers: Guide buyers wisely and help ensure smooth transactions.
Homeowners Refinancing: Make sure the “discounts” you’re offered are genuine and not hidden markups.
Take Control of Your Mortgage Experience
Not all discounts are created equal. In fact, many are illusions that cost you more over time. By knowing these seven common scams, asking tough questions, and comparing offers, you’ll be better equipped to find a mortgage that genuinely benefits you.
Ready to navigate the mortgage landscape with confidence? Contact Pacific Residential Partners for trusted guidance. With decades of experience, we’re committed to transparent, borrower-focused solutions—no hidden costs.
Get in touch with Pacific Residential Partners today, and let’s make your home financing experience straightforward, honest, and truly beneficial.
