Nobel Prize recipient, Richard Thaler, in his research into seemingly irrational economic behaviors, "found that consumers generally search too little, get confused while evaluating complex alternatives, and are slow to switch from past choices, even if it costs them." "Why are consumers leaving money on the table?"
Based on this behavior, a borrower securing a mortgage might depend on their existing banking relationship or a single referral from a friend or agent rather than shopping multiple lenders.
When shopping for a lower mortgage rate, consider that not all lenders share the same business practices. Some may lure unsuspecting borrowers to a rate, knowing full well that they cannot deliver on it. After making a loan application and supplying information necessary for approval, they reveal that the rate is not available for "whatever" reason.
They're counting on the borrower wanting to get into the home because the closing date is near and they'll compromise by accepting the higher than quoted rate.
Shopping for a mortgage rate can result in savings because rates are set by individual lenders. To get an apples-to-apples comparison, the terms of the mortgage being shopped should be consistent among the lender candidates.
Consumers can make additional savings by not only shopping for better rates but for better terms and fees, which can vary widely among lenders.
The amount of savings can be affected not only by the difference in rates, but the size of the mortgage and the length of time borrowers expect to keep it without refinancing or selling.
- Advertised rates are generally for A++ borrowers and the determination is the lender's based on many factors. It may be unlikely those rates are offered to you.
- A recommendation for the best lender from a friend or family member will not necessarily be the best for you.
- Instead of accepting the first offer received, shop for at least three to five offers.
- Your personal bank may be convenient but it may not offer you the best rate, terms, and fees.
- Ask if there is room to negotiate the rate or fees.
Ask your real estate professional for recommendations of several trusted lenders for you to shop a rate, terms, and fees.