Shopping For a Mortgage on Multi-Lender Web Sites
From the beginning, the basic promise of multi-lender
internet-based sites was that they would provide one-stop
shopping. With my colleague Jack Pritchard, I recently
examined 13 major mortgage web sites to see how well this
promise has been fulfilled.
We found 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 -- they
remain the best game in town. But great care is required in
selecting the site on which to shop.
You want to be
able to shop effectively,
which 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 major features a mortgage site should have for
borrowers to shop effectively.
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
The sites that operate this way will provide little or no
help in making a selection among the lenders vying for your
Complete Price Adjustments
If the price you
receive from the web site is not fully adjusted for all the
characteristics of your loan that affect price, it is
worthless. 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 the score required for the lowest price, which
means that if your score is significantly lower, your actual
price will be higher. You won’t find that out, however,
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.
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
appear low compared to others.
All Lender Charges
To price shop effectively, all lender charges should be shown. 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.
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. Furthermore,
there is no way for you to know it.
To shop effectively, the site selected should have the 6
features discussed above. In addition, there are other
site features that might be important to some borrowers.
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. The site may or may not provide
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.
The site may or may not provide such help.
Third Party Charges
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.
A table showing the features of 13 major multi-lender mortgage shopping sites can be found at Features of Multi-Lender Web Sites.