Comparison Shopping for a Mortgage: What to Know
Comparison shopping for a mortgage can save you thousands over the lifetime of a home loan.
Consumers regularly comparison shop for everyday items. It's the best way to try to find the lowest price for the best quality. So why not comparison shop when making a home purchase? Sure, buying a home isn't like buying any other type of good, which makes everything different — or is it?
When you're in the process of getting a mortgage, it's imperative you talk to different lenders and compare your home loans options against one another. Every budget-conscious behavior you use when buying toothpaste or cat food should be employed when shopping for a mortgage.
You can save hundreds each year and thousands over the lifetime of a mortgage if you engage in even a little bit of comparison shopping. Granted, there are more specifics to consider with a mortgage than a household item; to help, here's some information on what you stand to save and how to shop for a mortgage the right way.
Average homeowners can save $300 a year
Recent research from the Consumer Financial Protection Bureau (CFPB) shows the scale of cost savings available to those who comparison shop for a mortgage. Now, most shoppers don't engage in such comparative analysis because they assume rates are relatively all the same. Not only are consumers likely to encounter a range of rates, but even half of 1 percent of a difference can net big savings.
CFPB research found that the difference between the rate the average U.S. homebuyer got and the lowest on the market was equal to around $300 a year . If the consumer got the best rate, they'd save $1,500 over five years, and $3,000 over 10 years. Many mortgages come in 30-year terms, and in three decades those annual savings would amount to $9,000 — substantial for the average homeowner.
However, the agency found more than three in four mortgage shoppers will only apply with one lender, eliminating any chance they might have to enjoy cost savings by comparing home loans. Many have the misconception that rates don't vary much, and if they do it's negligible. Yet the CFPB said the difference between an interest rate of 3.5 percent and 4.0 percent on a $400,000 mortgage would equal $114 per year, certainly not throwaway money.
How to comparison shop for a mortgage
Now that you know the importance of comparison shopping, here are some tips to start with if you're a prospective homebuyer:
- Focus on the interest rate, but don't forget everything else: The main thing you will want to compare is the interest rate and APR, as that's where the savings are. But don't neglect to compare term lengths and whether you can buy points upfront and save in the long term.
- Consider different products: Maybe an adjustable-rate loan fits your timeline better than a fixed-rate mortgage. Maybe a hybrid option would be the perfect fit. You won't find the answer unless you talk to multiple lenders about their different products.
- Be prepared to shop: Have all your documents and personal finance statements ready. You'll want to show lenders you're for real to get the best deal.
Want to learn more about how Vectra Bank home loan options can fit your budget and needs? Contact your local rep today.