Using “fixed” in a variable-rate mortgage advertisement

A mortgage advertisement can mislead when it highlights a temporary introductory rate or payment as if it applied for the entire loan. Regulation Z § 1026.24(i)(1) restricts the word “fixed” in ads for variable-rate transactions and other transactions where the payment will increase. The rule contains specified ways to make a limited-period fixed feature clear, but the label alone is not enough.

The baseline prohibition

An advertisement for a variable-rate transaction generally may not use “fixed” to refer to the rate, payment or transaction unless the conditions in the regulation are met. The same provision covers certain non-variable-rate transactions with a payment that increases, such as a stepped-rate product. The purpose is to stop an introductory period from being presented as a permanent feature.

Variable-rate-only advertisements

When the advertisement is solely for one or more variable-rate transactions, it can use “fixed” if “Adjustable-Rate Mortgage,” “Variable-Rate Mortgage” or “ARM” appears before the first use of “fixed” and is at least as conspicuous. Each use of “fixed” to describe a rate or payment must also be accompanied by an equally prominent and closely proximate statement of how long it is fixed and that the rate may vary or the payment may increase afterward.

Stepped-payment loans and mixed ads

For a non-variable-rate transaction with an increasing payment, each use of “fixed” to describe the payment must be paired with an equally prominent, closely proximate statement of the period and the later increase. An ad offering both variable-rate and non-variable-rate products has additional prominence rules: the ARM or variable-rate description must be as prominent as “fixed” and related terms, and a fixed claim must clearly identify which product it describes and the applicable change after the introductory period.

Example

“Fixed payment for the first three years” is incomplete if the ad is for an ARM and does not clearly disclose what happens afterward. The ad should first identify the loan as an adjustable-rate mortgage at least as prominently as “fixed,” then state near the fixed-period claim that the payment is fixed for three years and may increase afterward as the rate adjusts. Other required disclosures can also apply depending on the terms advertised.

Exam checklist

1. Identify whether the ad is for an ARM, an increasing-payment non-ARM, or both.
2. Check whether “fixed” describes a rate, payment or transaction.
3. Apply the matching subsection of § 1026.24(i)(1).
4. Look for product identification, time-period disclosure, later-change warning, prominence and proximity.

Key takeaway

“Fixed” may describe only a limited period when the advertisement also makes the variable nature and later adjustment clear in the order, prominence and proximity required by § 1026.24(i)(1).