Lenders can offer a wide dispersion of rates, up to 50 basis points or 0.5 percent, after controlling for factors like the borrower’s down payment and credit score. That could be the difference between a 3.5 percent versus a 4 percent mortgage rate, according to a recent study by two economists at the Consumer Financial Protection Bureau, who culled mortgage data from 2014.
The authors offer up a scenario of what would happen if consumers had done an additional search for rate offers. Just one extra search could potentially reduce a borrower’s monthly payment by $8.63, on average. Adding five more searches could help them reduce their payments by $17.03 per month (that’s about $204 over just one year in savings). That said, the borrower’s initial offer may end up being the strongest in some cases, despite additional searches, the authors also note.
But in general, the researchers say that borrowers’ shopping around forces lenders to compete and likely will reduce the costs the borrower will end up paying.
“Tell your clients, especially first-time buyers, to shop more,” notes the National Association of REALTORS® Economists’ Outlook blog, interpreting the study’s results. “It may save them money. They should use websites that quote multiple lenders and get multiple offers on their own from large retail lenders, smaller banks or credit unions, and mortgage banks. But always consider the total cost, which includes the lenders’ fees and other services.”
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