May
13


Consumer Agency Launches Tool To Help You Find A Cheaper Mortgage

Friday, May 13, 2016

Many Americans love a good deal, shopping around to save $10 or $20 on a pair of pants or winter coats for the kids — but when finding mortgages, nearly half don't even call around to different banks. Three-fourths only fill out an application with one lender.

Richard Cordray, head of the Consumer Financial Protection Bureau, says there may be a few reasons consumers aren't comparison shopping for loans.

"It is a surprising finding, and it suggests that they're still fairly intimidated by the mortgage transaction," he says. "Or they're a little distracted because, at the same time, they're picking out a house."

But Cordray explains how costly the oversight can be, using as an example a $200,000 loan at rates of either 4 percent or 4.5 percent.

"The difference in even a half percent of interest racks up pretty quickly over five years to about $3,500 — and over the life of a 30-year loan, obviously, far more than that," Cordray says. "So this is real money for people — meaningful money."

In response, the Consumer Financial Protection Bureau is launching a set of online tools today to make these comparisons and decisions easier for U.S. homebuyers. One, for instance, will let a user plug in their credit score and ZIP code to generate a range of interest rates being offered by lenders that day.

But there may be psychological hurdles to overcome as well as the informational ones, says Brigitte Madrian, a Harvard economist who studies how human nature gets in the way of us making better financial decisions.

The first is that buyers fail to recognize the huge difference that a small number like half of 1 percent can make over time.

"Consumers don't really understand compound interest. This has been documented in lots of different research studies," Madrian says.

Those small percentages, when factored in again and again, have an immense cumulative effect: Consider, for instance, how even the relatively low inflation rates in recent decades have increased prices by 50 percent since 1996.

Another thing our brains do, Madrian says, is look at cost savings in relative terms. The phenomenon, impressively named the Weber-Fechner law of psychophysics, can make saving hundreds of dollars seem less worthwhile than saving $10.

"If a store is offering a discount — you know, $10 on a $30 pair of shoes, that's a 33 percent discount — people will drive 20 minutes out of their way to get that discount, because it's a big relative difference in price," she says. "Whereas they might not drive 20 minutes out of their way to save $300 on a car if that $300 is only 1 percent of the price of a car, because 1 percent seems small."

The federal government is hoping that its new mortgage tools can help break through these mental blocks to convince Americans just how valuable .5 percent can be — and give them a better chance to realize those thousands of dollars in savings.

www.consumerfinance.gov/owning-a-home






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Estella said
"That is a beautiful shot with very good lighting ." about Women Consider Owning a Home to be a Vital Component of the American Dream
on Sunday, May 12, 2013 @ 9:57 AM

Chris White - Team Leader said
"Unfortunately you are not alone. It's more than an outcry. The powers that be really need to come down harder on Bofa than they already are. Working on these short sale for over 2 years now I've uncovered down right fraud happening on the lenders parts. If they cared more about moving this country forward than protecting their own wallets then they would cut the red tape and approve these short sales in a timely manner. Our team made the wise decision to get BofA loans which were FHA or Freddie Mac backed, approved prior to listing on the market. Then we can list the home as "Price Approved" and close in 30 days. In this instance BofA does a full appraisal, rather than an incompetent "Broker Price Opinion" (nothing against agents but they have no idea how to make adjustments on comparable homes) and then the bank issues an "Approval To Participate" letter which dictates what price we can go on the market and take anything north of 88%. I really do hope your situation improves. " about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:15 AM

Lisa Zeiner said
"We made an offer 4 months ago to BofA, and have heard nothing. It was a cash offer which is better than the zero money they are collecting now. And since the people don't care they are trashing the place, by the time BofA gets around to it our offer will be gone as the place is a mess!! Septic issues now, garbage being dumnped. All of this could have been avoided if BofA really wanted to correct their cash flow problem and sell these properties in a timely manner. They cry about cash but then do nothing intelligent to fix the problem" about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:06 AM

Jones Ramirez said
"Thank you for the work you have done into this post, it helps clear up a few questions I had." about How do appraiser’s determine a homes value?
on Tuesday, April 19, 2011 @ 10:07 PM

HollyRobsonf said
"Hey - I am certainly happy to find this. great job!" about Bank of America to Offer Principal Reduction to Underwater Borrowers
on Wednesday, April 13, 2011 @ 6:45 PM