Shopping around is one of the best ways to make sure that you find the best deal when you make a major purchase. Whether you are looking to buy a car, television or airline ticket, consumers are accustomed to comparing multiple vendors to find the lowest price and often use the Internet to help with the comparison shopping.
Aside from actually buying a home, getting a mortgage is perhaps the largest financial purchase most people make so FREEandCLEAR wants to understand how many lenders borrowers shopped when they selected their mortgage lender. It is not uncommon to shop four or more auto dealers, retailers or airlines when you buy a car, television or plane ticket, respectively, but what about mortgage lenders? With so much money on the line — the average borrower spends hundred of thousands of dollars in interest expense over the life of their mortgage — you would expect that borrowers shop lenders at least as much as they do when they buy a television, right?
According to the FREEandCLEAR Mortgage Survey, however, the answer is no. Although a mortgage is usually one of the biggest financial commitments most of us make and despite how just a small decrease in your interest rate and closing costs can save you thousands of dollars, most borrowers said they did not shop around when they selected their lender. When asked how many lenders did you compare when you got your mortgage, 36% of borrowers responded that they only contacted one lender and 28% of borrowers said they contacted only two lenders. So almost two-thirds of borrowers (64%!) shopped two or fewer lenders when they got a mortgage. It is crazy to think that the majority of borrowers shop more for a television than they do for a mortgage!
So how many lenders should borrowers shop when they get a mortgage? Although every borrower is different, the number is definitely greater than one or two and usually greater than three. FREEandCLEAR advises borrowers to compare at least four lenders when they shop mortgages so that they can review a range of proposals and find the loan with the lowest rate and closing costs (shameless plug alert: our INTEREST RATES function makes it super easy to compare multiple mortgage lenders). Our survey results make you wonder how much money borrowers are leaving on the table by not shopping lenders more extensively — potentially billions of dollars.
The findings from the FREEandCLEAR Mortgage Survey, however, were not all negative. 14% of borrowers said they compared four or more lenders when they got a mortgage and a combined 36% of respondents said they shopped three or more lenders. So a little more than a third of borrowers appear to be making more informed decisions when they select their mortgage lender.
While this slice of the survey results is certainly positive, it also reinforces a tremendous opportunity for the majority of borrowers. Although shopping mortgage lenders takes extra time and effort, it is free for borrowers and can save them a lot of money. If we are all thrilled to save a few bucks when we buy a new television, we should be ecstatic to save thousands on our mortgage.
We will continue to provide a detailed analysis of each survey question on our blog in the coming weeks and you can review the full results from the FREEandCLEAR Mortgage Survey to better understand how borrowers think about and experience the mortgage process.