Many miss significant savings when applying for a mortgage – Part 2
Mortgage borrowers who know exactly what they need are more likely to shop around for lower interest rates and may achieve significant savings.
The Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency (FHFA) jointly funded and developed a survey examining information related to consumers’ mortgage shopping experience. The CFPB examined a subset of the questions asked consumers and published their findings in a report entitled Consumers’ mortgage shopping experience. One key finding is that almost half of the consumers who take out a mortgage for home purchase do not shop around for a mortgage prior to applying for the loan. By failing to shop for a mortgage, many consumers miss potentially significant savings. The difference in interest rates, though sometimes seemingly insignificant, can account for thousands of dollars over the life of the loan. Why do a significant number of people fail to shop different lenders?
A number of influences may affect a consumers’ behavior. We may gain some insight by looking at more of the report’s findings summarized on page 10 of the report. The report states that a sizeable share of borrowers look to a lender or broker’s reputation, geographic proximity and other relational characteristic in determining whether to seek mortgage funding. Furthermore, the report notes that the primary source of information relied on by mortgage borrowers is their lender or broker, followed by their real estate agent. This is significant because, although the information that the consumer receives may be very accurate, these parties have a significant interest in where the consumer goes for her mortgage loan. As discussed on page 24 of the report, those consumers who did not consider the relationship, reputation and proximity of the office as well as other similar characteristics as very important were more likely to shop around than those who did consider those characteristics important. In short, many times, they pick lender or broker before the mortgage product is picked (e.g. shopping at a particular store over another store without regard to the products or prices). Those who did not consider such factors as important, shopped around.
Seemingly low on the list of influences are housing counselors (see page 20 of the report). Housing counselors provide counseling and education to the borrower that helps make an informed consumer. Another monetary benefit directly affecting the lender is that the 90-day delinquency rates of borrowers receiving counseling are reduced by an average of 33 percent according to Freddie Mac. This would appear to produce consumers who know exactly what they need are less likely to default, and shop around for lower interest rates in order to achieve significant savings.
Michigan State University Extension offers a variety of money management programs throughout the state of Michigan. For more information on making a spending plan, saving money and making money decisions, visit MIMoneyHealth.org.
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