When shopping for a particular item, everyone is always on the lookout for the best deal, especially if it's an expensive purchase. This rule holds true for things like shoes, appliances, and cars, but many home buyers fail to shop around when it comes to the most expensive item of all: a mortgage. Freddie Mac recently analyzed just how much money buyers are losing out on over the course of their loan by failing to get multiple quotes, and the number wasn't cheap! In fact, they found that getting just one extra quote saves the average borrower over $1,400!
How common is the problem of not shopping around for a mortgage? The numbers are worse than you might guess. Nearly half of all home buyers fail to seriously consider more than one lender during their mortgage search, and a full 77% only end up submitting one mortgage application! Of course, this is only a problem if there are significant differences in the rates offered by different lenders, which was the first question to be answered by Freddie Mac in their examination.
After obtaining mortgage information from 125 different lenders from across the country during the last week of March, Freddie Mac found that a typical rate offer was around 4.5% on a 30-year fixed-rate mortgage; however, there was a substantial range of rates, with some falling as low as 4.2% and others landing as high as 4.8%. Therefore, if a buyer only considers one lender, they are risking paying a higher interest rate simply through bad luck. On the other hand, searching around between multiple lenders allows buyers to choose the lower rate, greatly reducing the chance that they are stuck paying too much. This may seem obvious, but remember that half of buyers fail to do this!
Next, Freddie Mac sought to put an actual dollar value on these interest savings by examining historical lending data. They found that, on a $250,000 loan, getting just two rate quotes would result in an average savings of $1,435! If you think that seems like a lot of money, consider that the average amount saved continues to increase with the number of quotes, with three saving $2,125 and five saving almost $3,000! In addition, keep in mind that a larger loan would result in even more saved money.
Click here to learn more about how Freddie Mac calculated the value of getting multiple mortgage quotes.
