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Consumer Agency Mortgage Tool Can Help Prevent Costly Oversights

Finding the Right Mortgage, Mortgages
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Mortgage Rates Today, Tuesday, Oct. 18: Steady Climb; Homeownership Out of Reach for Many

A new tool launched by the U.S. Consumer Financial Protection Bureau promises to help you become more savvy about mortgage rates offered in your area.

The agency’s Rate Checker tool is part of a “Know Before You Owe” initiative called Owning a Home, designed to help empower consumers to take control of the mortgage process. You can use Rate Checker to gauge available mortgage rates from lenders in any state for various types of loans and for borrowers with different credit scores and down payment plans.

Nearly half of all homebuyers only consider a single lender or broker when looking to finance a mortgage. But not shopping around is a lapse that can cost you thousands of dollars in extra interest, according to the bureau. Most consumers focus their efforts on determining their housing needs, from location to square footage and other features, but don’t take as much care when it comes to considering mortgage options, according to Richard Cordray, the agency’s director. That can be an expensive oversight.

“Consumers spend considerable time looking at different neighborhoods and at different homes for sale,” Cordray said in a speech at the Brookings Institution. “The same should be true of choosing among possible mortgage loans. When you are spending a lot of money, you are literally betting the house on the choices you are making, and it can be highly beneficial to shop around.”

Empowering homebuyers

Rate Checker and the other tools come as a response to findings in the bureau’s National Survey of Mortgage Borrowers, which was conducted with the Federal Housing Finance Agency. The research shows that consumers often get most of their information about mortgages from their lender or broker rather than from less biased sources. Also, when consumers gain more confidence about the buying process, the study indicates that they become more likely to shop for a mortgage.

Rate Checker gives you access to information provided by lenders in an anonymous format, so you can see what rates are being offered in your state. All you have to know is your credit score, the amount you want to borrow and the cost of the home you want to purchase. The tool then uses your inputs and incorporates information from lenders’ internal rate sheets to calculate what rate you could qualify to receive. The agency has made available a working version of the tool, but it’s still in beta, which means it’sstill being developed and may change as a result.

Unlike similar tools, Cordray says, the Rate Checker gives users a projected rate tailored to their inputs rather than presenting quotes that assume high credit scores and big down payments. What the checker does assume is that the user wants to purchase a single-family home as a primary residence. The rates also assume you’ll want to either reduce your closing costs by taking what’s known as a half of a negative point, or that you’ll want to cut the loan interest rate by paying a half a point. It also assumes you have a 60-day rate lock.

Wide variation

Since interest rates can vary by more than half a percentage point between lenders for a conventional mortgage on the same home for the same buyer, having a way to see the range of what’s available could mean saving tens of thousands of dollars over the life of the loan. As an example, Cordray cited a conventional 30-year, fixed-rate $200,000 loan to a borrower with good credit who puts down 20%. At an interest rate of 4% rather than 4.5%, he or she would save $3,500 in the first five years. Over three decades, the interest savings would top $21,000.

The Rate Checker tool may prove to be a beneficial for consumers, says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.” But, she says, for real accuracy, it is still too broad.

“It is useful as a rough point of comparison, but it can’t account for dozens of factors that could impact your rate and cost, including some very basic ones,” Fleming says.

These could include employment status and the type of home you plan to purchase.

Limited insights

While a good effort, the bureau’s tool also doesn’t take into account other things that can affect the rate a borrower may be offered, says Joe Parsons, a senior loan officer at mortgage broker PFS Funding in Dublin, California. He identified such excluded factors as whether the loan would be for a purchase or to refinance an existing mortgage, or if the borrower has an escrow, or impound account, typically used to collect property tax and insurance payments. Additional elements the Rate Checker doesn’t show — for the sake of practicality — are costs and fees that vary from one lender to the next.

The Rate Checker tool could be problematic for users who are only looking at the lowest rates displayed in search results, says Chris Crandall, a senior loan officer at New American Funding, a mortgage bank in Beverly Hills, California.

“Less than 1% of the people will qualify for the lowest rate. Most will fall in between the low and the high,” Crandall says.

But, he says, the site does deliver fairly accurate rate information. You just need to keep in mind the best way to use it: as a guide to the range of possible rates that may be available to you for the financing you want. You’ll still have to shop around to get them.


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