As a Consumer, do YOU Understand Your Mortgage?
Zillow Mortgage Marketplace recently conducted a survey with results indicating home buyers may not fully understand the basic ideas behind real estate mortgages. Zillow Mortgage Marketplace Director, Erin Lantz, noted that, "Most people wouldn't jump out of a plane if they didn't know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages. By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money."
- 44% of prospective buyers are not confident of their knowledge of mortgages or the process as a whole.
- 57% do not know how ARMs (adjustable rate mortgages) work.
An ARM is a mortgage loan with the interest rate adjusted periodically based on an index reflecting the cost to the lender of borrowing on the credit markets. ARM interest rates adjust according to prevailing rates. Borrowers may experience lower or higher rates when the ARM is reset.
- 34% do not understand that lender fees are negotiable and vary by lender.
Lenders are not required by law to charge a constant fee for credit reports and appraisals. As a buyer, ask your agent or shop around for the best fees-they are running a business too.
- 45% believe they should always buy mortgage discount points.
Depending on how long the buyer intends on owning a home, mortgage discount points, or prepaid interest, may not be beneficial. On average, each discount point on a 30-year loan lowers the interest rate by .125%. Calculating your monthly payment without and with the points and comparing them will get you the true savings each month. If you divide the amount charged for points at closing by the monthly amount saved, the resulting number is the number of months you must keep the loan to break even.
- 55% do not know mortgage rates fluctuate throughout the day.
Mortgage rates are very similar to stock prices in the amount they can vary from day-to-day. Shopping around and watching overall trends in the market will benefit a buyer.
- 37% think pre-qualifying for a loan means they have secured financing.
Pre-Qualifying is an approximation built by a loan officer of what a buyer can afford. It is an estimate that is not committed to be funded until a lender has approved it.
- 42% do not know that FHA (Federal Housing Administration) loans are available for all buyers.
Not just for first time buyers, the FHA insures mortgages on single family and multi-family homes with fixed rate, adjustable rate, energy efficient, graduated payment, condos, and for growing equity mortgages.
As agents, we have an obligation and should insist that the lenders we are associating with have educated the buyers regarding the type of loan they are committing to and answer any questions they may have. From the exposure agents and lenders have to the market as a whole, we can grow numb to the fact that this world is foreign to many buyers. If a client does not know what they are getting into, it can only lead to problems for them down the road. Transactions can be smoother, more efficient, and overall more enjoyable for all involved with a simple effort to clarify, be detailed and thorough, and help answer your clients’ questions.
“Ipsos, a market research company, performed the survey and said that it involved a "nationally representative" sample. The results are considered accurate within +/-3.1% of what they would have been had the entire U.S. adult population been polled.” http://bsd.dli.mt.gov/license/bsd_boards/rre_board/pdf/vol_3_issue3.pdf