When most people are in the process of making a major purchase, it’s likely that they will shop around in order to educate themselves about available options and to look for the best price available. However, this trend does not seem to carry over to looking around for the best mortgage, even though it goes hand in hand with one of the most expensive purchase decisions in the average person’s life.
Just how many people don’t do their homework? According to a survey done by the Consumer Financial Protection Bureau, 47 percent of homebuyers don’t compare lenders before applying for a loan. The survey also indicates that the majority, 77 percent, only apply to a single lender instead of going through the application process with multiple creditors to see what the best available loan option is.
Another potentially concerning discovery was that only about a quarter of borrowers used sources like financial counselors and the Internet for information about mortgages. The issue here is that the average person isn’t familiar with all of the moving parts associated with obtaining a mortgage or how much they stand to save (or lose) based on the type of loan they receive. Of the respondents, those who were well informed about current available interest rates were nearly twice as likely to shop around for a mortgage.
So what is the problem with these findings?
While shopping for a mortgage may feel time consuming and sometimes confusing, getting a good rate can make a significant difference in annual payments and the final cost of a home. Let’s take a $200,000 house as an example. Based on a 30-year fixed rate mortgage, getting a 4.0 percent interest rate instead of a 4.5 percent interest rate results in about a $60 monthly saving in mortgage payments. In just five years, the lower interest rate would allow someone to pay off $1,400 more in loan principal in spite of a lower monthly payment. Furthermore, over the course of the loan, a homeowner’s savings could exceed $20,000. Keep in mind that this is for a $200,000 home, so savings for the average South Bay home will be significantly greater.
While I feel confident in the resources and loan terms I can provide for homebuyers, I do encourage everyone, particularly those who are new to the process, to do their homework before committing to a lender or mortgage. It might not be the most exciting part of the home buying process, but you’ll be thankful you did it. As always, I’m here for any questions and guidance you need.