January 20th, 2015 10:57 AM by Jackie A. Graves, President
Did you pay too much for your mortgage? If you’re like millions
of Americans, the answer is probably yes — and that means you may be throwing
tens of thousands of dollars of your hard-earned money at the bank, when you
might not need to.
report released Tuesday by the Consumer Financial Protection Bureau finds that almost half (47%) of
Americans don’t shop around for a mortgage when they purchase a home.
“Consumers put great thought into the choice of a home, but the mortgage
process continues to be intimidating,” CFPB Director Richard Cordray said in a
Number of lenders Americans seriously consider before applying
for a mortgage
Source: Consumer Financial Protection Bureau
don’t shop around for a mortgage, you’re probably leaving free money (and a lot
of it) on the table. “Interest rates can span more than half a percent for a
conventional mortgage for borrowers with a good credit rating and a 20% down
payment,” says Sam Gilford, a spokesperson for the CFPB.
half a percent may not sound like a lot, it can be a more than $25,000 mistake
for the average borrower (as of November 2014, the average price of a home sold
in the U.S. was about $321,800, according to data from The Census Bureau), who takes a mortgage
that’s half a percent higher than one he could have gotten by shopping around.
borrower accepts a 4.5% interest rate instead of a 4% interest rate on the
average home (a sale price of $321,800 and a down payment of 20% means he
borrows a total of $257,440). If he gets a 30-year fixed rate loan at 4.5%,
he’ll pay a total of $212,148 in interest; for a 4% interest rate, he will pay
just $185,021 — a difference of more than $27,000.
who buy a home that costs more than average — or who put down a smaller down
payment than 20% even on an average home — the results may be even more grim.
For example, a person who gets a $500,000 mortgage would pay more than $412,000
in interest over the life of his 4.5% 30-year fixed rate loan, which is roughly
$53,000 more than with a 4% rate.
sure, many people who don’t shop around may get the best rate anyway — or at
least close to it. Others get a mortgage that may be a little too costly, but
will later refinance and save themselves money. And still others will sell
their home well before the 30-year loan period is up, so they end up paying
less in interest.
experts say it’s worth shopping around, as even 1/10th of a percentage point can
mean thousands of dollars in extra payments to the mortgage company over the
life of a loan. Luckily, doing so is relatively easy. Before shopping around,
Greg McBride, the chief financial analyst for Bankrate.com says that you should pull copies of
your credit reports from each of the three major credit bureaus (you can get
these for free atannualcreditreport.com), consider what type of
loan makes the most sense for you (see MarketWatch’s “How to Get a Mortgage” guide) and figure out
how large of a loan you can afford (there are dozens of online calculators that
can calculate your monthly payments and more).
you’ve done that, McBride says that you should get quotes from your local bank
and credit union as well as online and apply with up to three lenders on the
same day. (Kathleen Campbell, the founder of Campbell Financial Partners in
Fort Myers, recommends using Bankrate to check mortgage rates, and considering
online lenders like Quicken Loans, CapitalOne 360 and Pentagon Federal Credit
Union.) Finally, “compare all lender fees and rates, negotiate to get the best
deal, and select the best offer,” McBride says.
By: Catey Hill | This
story was originally published Jan. 13 on MarketWatch.com.
To view the original article click here