Many borrowers are paying more than they need to for a mortgage because they didn't shop around for lenders enough, according to a new study released by the Consumer Financial Protection Bureau. In response, CFPB is releasing an interactive online toolkit called "Owning a Home," which aims to help consumers better understand the mortgage process, compare lenders, and find the best deal.
Three out of four borrowers apply only with one lender or broker when seeking a mortgage, according to the study, which was based on consumers who took out a mortgage in 2013. That means most aren't checking with multiple lenders to see which one can offer them the best deal.
"Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating," says CFPB Director Richard Cordray. "The 'Owning a Home' toolkit makes it easy to see how shopping for a mortgage can translate into big dollars saved in the long run. We want to enable consumers to be more savvy shoppers."
Consumers who inquire about mortgages with multiple lenders or brokers are finding greater savings. CFPB found that interest rates can vary by more than half a percent among lenders for a conventional mortgage going to a borrower with a good credit rating and a 20 percent down payment. That means a borrower seeking a 30-year fixed-rate loan of $200,000 may snag an interest rate of 4 percent instead of 4.5 percent -- a savings of about $60 per month. Over five years, the borrower could save $3,500 in mortgage payments. The lower interest rate also means the borrower would be able to pay an additional $1,400 to the mortgage principal in the first five years and build greater equity, CFPB notes.
The agency's online toolkit offers up a guide to loan options, terminology, costs, and a closing checklist to help borrowers through the mortgage process. It includes a Rate Checker tool, still in beta testing, that helps consumers understand the interest rates available to them based on the same underwriting variables that lenders use, including loan type, property value, loan amount, and credit score.
With the Rate Checker, borrowers can see the rates that lenders are offering as well as a graph of how many lenders are offering each rate. The tool also allows borrowers to compare different interest rates and how much they will cost over the life of a loan, as well as apply different down payments to see how they would impact the cost of the mortgage. The CFPB is also providing steps consumers can take to get a better interest rate.
"Knowing the rates lenders are offering to consumers in a similar situation -- buying a home of equal value, in a comparable area, with the same credit score -- enables a consumer to enter conversations with multiple lenders armed with greater information and prepared with better questions," CFPB said in a statement. "'Owning a Home' also demystifies mortgage jargon, so consumers can have conversations with lenders more confidently."