Many buyers potentially leave money on the table by failing to contact more than one lender when shopping for a mortgage.
Two-thirds – 65 percent – of 1,000 buyers recently surveyed said they didn’t shop around for a mortgage, despite it being the biggest purchase they’ll ever make.
The study, conducted by PenFed Credit Union, also found a lot of confusion surrounding mortgages. For example, 44 percent of home shoppers believe the best mortgage for them is always the one with the lowest rate.
“The lowest-rate mortgage isn’t always best and consumers should consider additional factors, including the total closing costs and the broader annual percentage rate,” according to the study. “It’s also important to choose a company you trust and consider one that you already have accounts with since it can simplify payments.”
Many consumers also believe being “prequalified” is the same as being “preapproved.” And many don’t understand a loan’s terms, the study found. Prequalified means a lender gives the buyer an idea of what they can afford; preapproved is the next step and shows that a lender has okayed the buyer for home-purchase financing.
The survey also found that a majority of surveyed Americans – 58 percent – believe adjustable-rate mortgages (ARMs) are only for risk takers. However, lenders say ARMs may be a viable option for homeowners who plan to stay in their home less than the time it takes for the loan to adjust. A 5/5 ARM has a fixed rate for the first five years, for example, and likely has a lower payment during that time than a 30-year fixed-rate mortgage.
In many ways, buyers’ reason for not shopping around appears to be confusion over which mortgage is best for them – but a failure to shop around means they may never find out – and it could cost them a lot of money.
A separate Freddie Mac study earlier this year found that borrowers could potentially save an average of $1,500 over the life of a 30-year fixed-rate loan by getting just one additional rate quote when shopping for a mortgage. More quotes can offer even more savings.
For example, 80 percent of borrowers who received one additional rate quote while shopping for a mortgage saved between $966 to $2,086 over the life of their loan. Borrowers who gathered five rate quotes saw an average savings of $2,914. Eighty percent of the borrowers who obtained five quotes saved between $2,089 and $3,904, according to Freddie Mac’s report.
Source: “Americans Still Want to Own Their Dream Home Despite Rising Home Prices,” PenFed Credit Union (Sept. 18, 2018)
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