Homeowners appear to be less than savvy shoppers when it comes to finding a
mortgage to purchase or refinance their homes.
A new study from Fannie Mae suggests that consumers could save money and
find a more financially sustainable mortgage if they shopped more effectively.
Further, the study showed that higher income consumers were more likely to
do more research and approach the search for a mortgage more efficiently. For example, lower income survey respondents
were more likely than those with a higher income to have obtained a quote from
only one lender and to make less use of technology in their mortgage due
The study, one in an ongoing series of Topic
Analysis Reports produced by Fannie Mae, used data from the last three installments
of its National Housing Survey. The
survey is conducted monthly by phone with 1,000 homeowners and renters to
assess their attitudes toward owning and renting a home, the current state of
their household finances, views on the U.S. housing finance system, and overall
confidence in the economy. The three monthly surveys that make up any given Topic Analysis Report are identical in
wording and placement of questions. This
Analysis report was written by Steven Deggendorf, Fannie Mae's Director of Business
said his findings suggest that consumers could save money and
find a more financially sustainable mortgage product if they shopped more
effectively. Failing to do so means that
consumers may not be taking full advantage of the unprecedentedly low interest
rates offered today.
Income had a stronger correlation across responses than any other category
including education, income, race, and whether the respondent was a first-time
homebuyer. Deggendorf divided
respondents into three income groups which we, for purposes of brevity, will
label as Group A, incomes under $50,000; Group B, incomes between $50,000 and
$100,000; and Group C, those with incomes over $100,000.
He found that 43 percent of Group A obtained mortgage quotes from only one
source compared to 33 percent of Group C.
Consumers from Group A and B however were much more likely (at 50
percent each) to meet with a lending representative face-to-face than were
members of Group C who were slightly more likely than members of the other two
groups to obtain quotes by phone. Less
than 20 percent of any of the three groups relied on website sources for quotes.
The author points out that other recent research indicates that obtaining
only one quote might cost borrowers $1,000 or more in closing costs and
academic research suggests the risk of overpaying for a mortgage is higher
among lower income borrowers.
Additional research suggests that borrowers with a better understanding of
loan terms may take out lower-cost mortgages. However, research also
suggests that many borrowers, particularly those falling in lower income
brackets, do not fully understand their mortgages and can end up paying higher
costs as a result.
Survey results show that consumers do not always thoroughly evaluate their
mortgage options before obtaining a mortgage.
Lower income respondents are more likely to be influenced by mortgage
brokers and real estate agents. More than 3 out of 4 higher income respondents
said that competitive offers would have a major influence on their choice,
which is more than 20 percentage points higher than lower income respondents.
Reputation is important to all income groups: more than 2 out of 3 said it
would be a major factor in lender choice.
The study also found that a substantial portion of all consumers do not
understand key mortgage elements.
Respondents were asked to estimate the maximum percentage by which the
monthly adjustable-rate mortgage (ARM) payment can increase over the life of
the loan. Forty-one percent said they didn't know but among those who did offer
a guess the average was about 10 percent where the answer was actually 50
percent or more.7 Current mortgage borrowers' average estimates were
even further off of reality.
Respondents from Group C were more likely to rely on technology in their
mortgage search. For example, in
determining how much they could afford to spend on a home, 67 percent of Group
A, 75 percent of Group B and 78 percent of Group C calculated the amount
themselves. However, while 72 percent of
those in Group a doing their own calculation did it in their head or on paper
less than half of Group C did this, with about half using instead either a spreadsheet
program or basic calculator or an online tool.
High numbers of Group C borrowers used mobile devices to research homes
for sale (74 percent) research mortgage lenders or track interest rates (68
percent each) while only around 50 percent of Group A borrowers used a mobile
device for these purposes.
When asked about their own mortgage, higher income consumers were more
likely to say they paid what they expected at their mortgage closing.
"Homeowners who don't obtain multiple
mortgage offers or carefully compare rates are essentially leaving money on the
table, particularly given today's unprecedentedly low interest rates," said
Fannie Mae Chief Economist Doug Duncan. "Although a home purchase is the
largest financial obligation most people will ever make, many borrowers do not
fully understand their mortgage products and costs. As a result, some
homeowners in this position may find themselves with unsustainable payments
down the road."