Effective mortgage shopping means that the price you ultimately lock is the lowest available from all the lenders on the site, for your particular deal, at the time of the lock. This article will indicate the features a mortgage site must have for borrowers to shop effectively.
The fact is that many sites are less than forthcoming, and even misleading, just like the humans they are supposed to replace. This doesn’t mean you should avoid mortgage web sites because they remain the best game in town. But great care is required in selecting the site on which to shop. The table below indicates which sites have the features required for effective shopping.
Pricing Adjustment Codes:
|A||Site uses information provided by the user about all transaction features that affect the price.|
|B||Site either uses information provided by the user, or indicates the assumptions it is making.|
|F||Site uses its own assumptions about some transaction features without disclosing what they are.|
Fully-Adjusted Prices: If the price you receive from the web site is not fully adjusted for all the characteristics of your loan that affect price, then you are pricing someone else’s loan, not yours. Any relevant feature of your loan that the site does not ask you about it assumes to be the best possible, which generates the lowest possible price. If the site does not ask for your credit score, for example, it will assume you have a score of 800, which means that if your score is significantly lower, your actual price will be higher. You won’t find that out, however, until later.
Of the 14 sites examined, only four were completely upfront about the assumptions used: Mortgage Professor, Mortgage Marvel, Zillow, and Credit Sesame.
Posted Prices: Posted prices come directly from the pricing systems of the lenders. If prices are entered into the site by loan officers, who receive posted prices but are not bound by them, they cannot be relied upon. Loan officers may “low-ball” the price to snag shoppers and/or “high-ball” the price later on when the borrower has become committed.
10 of the 14 sites examined used posted prices.
Real-Time Prices: When lenders on a site change their prices, which happens daily and often more frequently, prices on the site should change automatically and simultaneously. Otherwise, site users don’t know whether the price on the site is live or obsolete. On sites that require manual updating, some lenders have a bad habit of forgetting to do it when interest rates rise, which makes their prices look low compared to others.
Only Mortgage Professor and Zillow use real time pricing.
Total Lender Charges: To price shop effectively, lender prices should be complete, meaning that all lender charges are included. Many sites show points, which is a single fee expressed as a percent of the loan, but leave out other lender charges that are expressed in dollars.
8 of the 14 sites examined disclosed total lender charges.
ARM Risk Features: Borrowers who might be interested in an adjustable rate mortgage (ARM) should assess the risks of future rate increases associated with ARMs. This requires information on the rate index, rate adjustment caps, margin, maximum and minimum rates.
Only Mortgage Professor provides this information.
Price Monitoring: Selecting the lender with the lowest quoted price, even assuming that it is a posted, real-time and complete price, does not assure that you will receive the best possible deal because the lender you select is not committed to that price. The price must be locked, which usually takes a few days and sometimes longer. During that period, the market will probably change, and your price will change with it. Furthermore, in verifying the information you provided, the lender could modify the features of your loan that affect the price, such as the property value. Unless you can monitor the impact of changes in the market and in the loan features on the posted price, the final price may be higher than the one you deserve, and there is no way for you to know it.
Only Mortgage Professor provides this facility.
Anonymous Shopping: Select a site that allows you to shop without revealing contact information. Otherwise, you will be besieged by telephone calls from the 3 or 4 lenders to whom your information has been sold. These are not the lenders offering the lowest price to you but the lenders offering the highest price for the information about you. The sites that operate this way will provide little or no help in making a selection among the lenders vying for your business.
10 of the 14 sites allow anonymous shopping.
Easy Access to Price Changes: Prices change every day, and sometimes more frequently. Having to re-enter a lengthy list of financial, property and transaction data to update prices is a chore. Having to enter the information only once to access up-to-date prices at any time, is a great convenience.
Only Mortgage Professor provides this facility.
Decision Support at Each Decision Point: Many borrowers need help in making decisions about the type of mortgage, and the combination of upfront fees and interest rate that best meets their needs. All sites show the mortgage payment but what borrowers also need is information on the impact of different options on the borrower’s future wealth.
Only Mortgage Professor provides information on changes in future wealth.
Prices of Mortgage-Related Insurance: The total cost of a mortgage includes charges by third parties, including title insurers and mortgage insurers. The site may or may not help borrowers reduce these charges, which are often excessive.
Only Mortgage Professor provides insurance quotes.
Multiple Paths Based on Borrower Needs: Borrowers vary greatly in their knowledge of mortgages and their competence in navigating web sites. One size doesn’t fit all.
Only Mortgage Professor provides multiple paths.