Consumers want the best price and best value, whether it is with a gallon of gasoline or a mortgage. Most lenders’ business comes to them from referrals, which is a very good thing, and many mortgage loan originators have had years of experience watching borrowers shop for loans. Some shop different lenders as if they could make a selection based on price. Most mortgage borrowers, however, don’t try to shop; they select or are selected by a single lender, which tends to work very well.
Unlike a gallon of milk, or a Big Mac, there are at least two prices: the interest rate and total lender fees. On adjustable rate mortgages (ARMs) there are also rate caps, the rate index used, and the margin over the index. Borrowers should know that an interest rate all by itself means very little. Multiple prices complicate shopping by borrowers when a number of factors enter into the decision: the products can change based on the borrower’s qualifications, the loan-to-value may change based on the appraised value, and the actual rate and price can change from day-to-day, or even during the day, based on bond market fluctuations.
In recent years borrowers have been at a disadvantage during the process since some lenders have exploited clients. They believe that since the borrower is not shopping, the lender can take advantage of them. This is the illegal, and should not be tolerated. Honest lenders believe in total transparency, and will not quote a price to a borrower below the price they are actually willing to accept. Low-balling is endemic on internet-based referral sites which display price quotes by dozens or hundreds of lenders, for example. Potential borrowers should be very careful when searching for a mortgage – it is an important process.
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