May 18th, 2019 8:51 AM by Jackie A. Graves
Let’s be real:
Shopping around for a mortgage is about as enjoyable as applying for multiple
jobs. Both involve a lot of paperwork, time and back-and-forth communication.
You may never hear back from all (or any) of those job prospects, but you’re
likely to reap rewards by shopping for mortgage rates with a handful of
To put this
mortgage shopping savings theory to the test, Freddie Mac conducted a study last year to find out how much
money borrowers potentially leave on the table when they don’t shop around.
For a typical
$250,000 mortgage, a borrower who gets one extra rate quote saves an average of
$1,435 over the life of the loan, with 80 percent of those borrowers saving
between $966 and $2,086 by shopping around with one additional lender, Freddie
Mac reported. The more you shop around, the more savings you rack up. Borrowers
who get five rate quotes save $2,914 — on average — with 80 percent of those
shoppers who get five quotes saving between $2,089 and $3,904.
While a few
thousand dollars may not seem like much spread out over a 30-year mortgage,
consider this: Many homebuyers struggle to save enough cash to cover their down
payment and/or closing costs. Saving $3,000 over the course of a mortgage
because you shopped around can equate to two months’ of mortgage payments.
case for shopping around
quotes from more than one mortgage lender means that consumers are more likely
to get a better interest rate and save money now and in the long term, says
Doug McManus, director of financial research at Freddie Mac.
monthly payments and lower fixed fees, the loan will be more affordable and,
thus, safer,” McManus says.
involved in rate-shopping can be daunting. A mortgage broker can do the work for you,
or you can visit multiple lenders on your own to do the research. Many lenders
provide free rate quotes online or by phone after you’ve provided a few
details, such as your credit score range, loan amount, term (length of your
loan) and the loan type you’re interested in. You can also check out Bankrate’s
mortgage tool, which allows you to see rates from multiple lenders
who offer home loans in your area.
prices still rising, it’s better to minimize your costs as much as you can on
the borrowing side — and shopping around for a mortgage is the best way to do
may have hundreds or thousands of dollars more in their pockets. Not a bad
return for a few phone calls or clicks,” McManus says.
money is just one of the benefits
lower interest rate and lower payment over the life of your loan is a big win.
But it’s not the only reason it pays to shop around.
lenders, you’ll see variations in lender origination fees, points, mortgage
insurance premiums and third-party fees. You’ll also get a sense of how long it
takes lenders to close a loan, how well they communicate and their customer
that most homebuyers want to get the lowest rate possible, but they shouldn’t
ignore these other nuances when choosing a lender, says Joe Zeibert, senior
director of products, pricing and credit for Ally Home.
When you get
loan estimates from different lenders, pay close attention to the fees, Zeibert
advises. If one lender charges higher fees than others, ask the lender to
clarify what the fees are for and if they can be negotiated.
a variety of lenders — big banks, credit unions, online lenders and regional
banks, and a mortgage broker — helps you compare who’s charging what. You also
get a sense of what kind of customer service you’ll receive, based on how
smoothly the communication goes and how your lender processes loan
pay in mortgage points (also called “discount
points”) is another reason it’s worth getting more than one rate quote. Points
are an upfront fee borrowers pay to buy down the loan’s interest rate. One
point equals about 1 percent of the loan amount, and lenders structure their
cash-strapped buyers who want to minimize out-of-pocket closing costs may prefer
a slightly higher interest rate in order to avoid paying points at all,
especially if they don’t plan to stay in their home long. But if you want to
stay put for the long haul, shopping around to find a lender that offers the
right mix of affordable rates and discount points can save you thousands,
right mortgage may be just as important as finding your dream home. You don’t
want to risk leaving thousands of dollars on the table because you didn’t
bother to shop. Don’t forget that choosing a mortgage is a long-term
relationship, Zeibert says.
complicated,” Zeibert says of the mortgage process. “So you want to work with
someone who’ll hold your hand in the process — and not just go where you’ll get
the cheapest discount. You might refinance or buy another home in the future,
so you want to work with people you can trust.”
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