Question of the Day: What Percentage of Mortgage Borrowers Don’t Shop Around?
Answer: Arguably, it is the biggest purchase that most people will make in their lifetime and yet 47% don’t shop around for their home mortgage.
Amazing statistic from CFPB report:
Buying a home is a big purchase, but it’s just that: a purchase. When it comes to spending money on our daily expenses, we have lots of options to help us find the best deal possible. Take, for example, digital gadgets. To get a good deal you can search for sales, find coupon codes, and research whether it’s less expensive to buy something from a big box retailer or on the manufacturer’s website. We shop to find the best price for laptops or appliances, but a report of recent mortgage borrowers found that almost half of us don’t shop around for a mortgage when we buy a home.
Now, I know that home purchases are not typically on the mind of high school and college students but I think this statistic points to a more general problem among consumers when it comes to financial products: they don’t like to shop around. The NGPF curriculum incorporates comparison shopping activities as a core element. To do this effectively requires building a foundational knowledge of financial products, knowing what factors matter and having the research skills to be able to compare products across these factors.
Why is the ability to comparison shop so important?
Quite simply, it is costing consumers thousands of dollars. From the CFPB report:
For example, our research showed that a borrower taking out a 30-year fixed rate conventional loan could get rates that vary by more than half a percent. Getting an interest rate of 4.0% instead of 4.5% translates into approximately $60 savings per month. Over the first five years, you would save about $3,500 in mortgage payments.
Having just gone through this process myself (and yes I did shop around), I can attest that I was quoted rates that varied by even more than 0.5%. Given the tremendous savings that arise from only small changes in interest rates, that extra hour or two comparing lenders is certainly worth the effort.
Here are several NGPF Activities that incorporate comparison shopping activities:
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.