Are Mortgage Referral Sites on the Internet Useful?
February 4, 2002, Reviewed October 10, 2008

"I like the idea of shopping for a mortgage on the internet, and the ‘referral sites’ you mentioned in a recent column seem like a good first step. Are they?"

To answer your question, I recently took a hard looks at six sites that provide price information for a large number of lenders and mortgage brokers: bankrate.com, bestrate.com, compareinterestrates.com, domania.com, interest.com, and loanpage.com. The sites don’t distinguish lenders from brokers and I will refer to them all as "lenders". All six were still operating when I checked on October 10, 2008.

Lenders pay for the privilege of posting their mortgage prices on the net. In this respect, referral sites are similar to newspapers, but they provide more information than newspapers. At least some of the price information on referral sites, furthermore, is posted on the day the user looks at the screen, whereas all price information in newspapers is obsolete.

Referral sites provide a relatively small amount of information about a large number of lenders. No one should select a loan provider based solely on this information. The promise of referral sites is that they will provide a list of low-price lenders, along with quick entree to those lender’s own web sites. Step two of this strategy would be to visit the web sites of each individual lender on the list to make a final selection.

Only borrowers who generate "plain vanilla" deals could find this a useful strategy. These are borrowers who have good credit; are citizens or permanent resident aliens; can make a down payment of 5-10%; have sufficient income, relative to housing expenses, to meet qualification requirements; can document income and assets; are purchasing or refinancing (with no cash taken out) a single-family detached house that is the borrower’s permanent residence; will escrow taxes and insurance; and won’t have a second mortgage on the house when the loan closes.

If you don’t meet all of these specifications, the prices shown on referral sites won’t apply to you. It is easy for unwary users to miss this because none of the referral sites spell out all the assumptions underlying their prices.

You need not bother either if you are looking for an adjustable rate mortgage (ARM). The referral sites just don’t provide enough information about ARMs to bother with.

They do provide complete price information about fixed-rate mortgages: the interest rate; points, an upfront charge expressed as a percent of the loan amount; lender fees expressed in dollars; and lock period, the number of days the lender is prepared to commit to the rate and points. They also show the date when the prices were posted.

On December 18, 2001 I shopped one of the sites for a 30-year fixed-rate mortgage in Pennsylvania. The site listed 19 lenders but I threw out 4 that were dated prior to December 18. (Why a lender would pay to be listed but not bother to keep prices current is a mystery no borrower wants to solve).

I ranked the 15 sites by APR, a summary measure of interest cost that takes account of some upfront charges as well as the interest rate. It is an imperfect measure but good enough for this exercise. I selected the 4 lender sites with lowest APR for a visit. All six referral sites except one had links to the lenders’ own sites.

I found that none of the four lenders with the lowest APR showed their dollar fees on their own site! In addition, one loan listed on the referral site at 6.75% and 0.25 points was shown on the lender’s own site at 6.75% and 1.367 points. A second loan listed on the referral site at 7% and zero points was shown on the lender’s own site at 7.375% and zero points.

I repeated this exercise with each of the other 5 referral sites, with similar results. In all too many cases, the lenders quoting the best prices on the referral sites were either quoting higher prices, or were not providing complete information on their own sites.

I did not repeat this exercise in 2008, but have no reason to believe the results would be any different.

I reluctantly concluded that referral sites were largely a waste of time. The better strategy is to go directly to the sites of loan providers, Upfront Mortgage Lenders in particular.
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