Many buyers may be potentially leaving money on the table by failing to contact more than one lender when shopping for a mortgage. Two-thirds—or 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.
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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, or they’re unsure of the terms, the study found. Being prequalified by a lender gives a buyer an idea of what they can afford, but being preapproved for a loan is the extra step that makes you a qualified buyer who can obtain financing for a home purchase.
The survey also found that a majority—58 percent—of surveyed Americans believe adjustable-rate mortgages are only for risk takers. However, lenders say that ARMs may be a viable option for homeowners who plan to stay in their home for less than five years. A 5/5 ARM has a fixed rate for the first five years, for example, and likely has a lower payment than a 30-year fixed-rate mortgage.
But by failing to shop around, consumers’ confusion over what mortgage is best for them may persist—and it could prove costly. A separate 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, according to Freddie Mac. 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.