Mortgage Loan
Refinance

Comparison shopping is easier, but nearly half of consumers don't

by Broderick Perkins

(8/30/2012) - Federal regulators have made it easier than ever to compare a mortgage, but nearly half of all borrowers just don't bother.

With mortgage interest rates varying by two percentage points or more, borrowers who don't shop around for a home loan stand to loose thousands of dollars over the term of the loan.

A Harris Interactive survey conducted this spring found that while 89 percent of American adults shop around for big ticket items, that doesn't include what's perhaps the biggest ticket they'll ever buy - a home.

Only 51 percent comparison shop for a mortgage - 49 percent takes whatever rate one lender offers.

"It is important for borrowers to understand that they have the power to choose which loan and which lender to use. It is acceptable to negotiate with lenders and to walk away if you are not fully satisfied. Consumers need to be engaged in the mortgage process to secure the best deal," said Doug Lebda, CEO of LendingTree which commissioned the study.

There's much variance in rates across lenders. The study said rates vary by as much as 1.5 percent for a 30-year, fixed rate mortgage, during the Aug. 6 to Aug. 10 period.

A consumer with a credit score of 759 and a loan amount of $260,000 might receive quotes from lenders ranging from 3.25 percent to 4.625 percent. With the lowest rate, the borrower could save $214 per month, $2,568 per year and nearly $74,000 over the life of the loan.

But many consumers, especially those with excellent credit, can save much more.

During the week ending Aug. 28, the ERATE Interest Rate Update found a difference of more than 2 percentage points in the high and low 30-year FRM rate and the 15-year fixed mortgage rate. The difference between the high and low 30-year jumbo rate was nearly 3 percent.

The range is even greater for equity loans - about 7 percentage points for both home equity lines of credit (HELOCs) and 15-year fixed-rate home equity loans.

And shopping around is easier than ever and due to get easier still.

Since Jan. 1, 2010, under the federal Real Estate Settlement Procedures Act (RESPA), lenders must give you the mandated Good Faith Estimate (GFE) within three days of accepting your application.

The three-page GFE shows the loan terms and the settlement charges you will pay if you decide to proceed with the mortgage. It also explains which charges can change before settlement and which charges must remain the same.

Perhaps most importantly, it also encourages you to shop around.

The GSE also includes a "tradeoff table" to reveal how your loan's costs compare with mortgages with a higher interest rate and lower settlement charges and mortgages with a lower interest rate and higher settlement charges. Those three comparisons are all from the lender who gives you the GSE.

However, with the GSE's "shopping cart" you can compare, side-by-side, the costs of up to four different mortgages, one each from a different lender. The comparison includes the initial loan amount, loan term, initial interest rate, initial monthly payment, rate lock period, if there's a prepayment penalty or balloon payment and whether or not the interest rate is adjustable, the loan balance can rise and the monthly payment can rise.

Along with the GFE, you also get "Shopping For Your Home Loan: HUD's Settlement Cost Booklet." The guidebook walks you through the GSE (including the comparison shopping) and the Settlement Statement (HUD-1). HUD-1 contains a complete and final list of all your charges and credits for the loan you choose. Get the HUD-1 as long before your loan closes as possible to examine all the charges and make sure GSE charges match up.

Even with greater disclosures and help with mortgage shopping, the Consumer Financial Protection Bureau (CFPB) doesn't think it's as easy as it could be to shop around and this summer proposed an enhanced set of mortgage disclosure to boost comparison shopping with more precision.

The new documents are open for public comment until Nov. 6 2012 and may not be available as a final rule until 2013, but you can see the documents now online at CFPB's "Know Before You Owe" program page.

Try them out. They could be useful during your mortgage shopping now. Or not. Whatever. That's the idea. Help make it better for you to comparison shop.

Comment on your experience or thoughts about the documents during the public comment period (sort of like a Facebook wall, but with real authority) and help make history - and mortgage comparison shopping easier.

 

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