Choosing the wrong mortgage
One thing that I have watched over the thirty years I have been in the mortgage business is the shopping habits of borrowers. Most of the time I see people making the same mistake. In fact they make the same kinds of mistakes today that they did in 1980. What is more disturbing is that they seem to be shunning educational opportunities.
They think they are buying a thing rather than buying a service. Because they think they are buying a thing that is the same in every regard, they concentrate on price. Why is this a mistake? Because a mortgage is not a thing.
There are always a number of different kinds of mortgages available. It was estimated that there were more than 2,000 different kinds a few years ago. Maybe it was 200. Whatever, there were always plenty of choices. Even today, perhaps there are 20 choices. Unfortunately, many people choose the wrong mortgage.
Even if they have chosen the right mortgage, they usually choose the wrong rate/fee combination. Then they do not even understand that there are a dozen choices and one of those is best. However, according to figures from Fannie Mae, usually about 50 percent choose a zero point loan, almost always a poor choice. Actually, research has recently shown that when consumers are faced with more choices rather than fewer, it actually complicates the decision-making process. Offering many choices may seem good, but it isn’t. Too much information makes deciding more difficult.
In addition, they do not understand the volatility of rates, which vary just like stock prices do. According to information from lenders, about the same number of people lock every day. So think about it. If rates are volatile and the same number of people lock every day, that means that half of them lock at rates that are above average and half at rates that are below average.