Although the vast majority of Americans consider themselves to be bargain hunters, not nearly as many thoroughly research mortgage rates when it comes time to purchase a home, an oversight that can end up costing them a pretty penny over the life of the loan.
LendingTree uncovered this curious phenomenon in a survey of more than 1,000 Americans over the age of 25. The company found that 79 percent of consumers reported a willingness to shop around for the best deal, with 92 percent having researched an item’s price online before buying it.
But when it comes to financial products such as a mortgage or automobile loan, just 30 percent of Americans said that they always shop for the best rate. Eighteen percent of respondents said they never seek out better loan rates.
A breakdown of U.S. consumer online comparison-shopping habits further highlights this trend. Roughly two-thirds of respondents said that they regularly compare online prices for electronics, flights, and hotels. About half comparison shop for appliances and general merchandise, while around one-third do so when buying clothes. When researching loans, including mortgages, less than 15 percent of Americans routinely compare rates online.
So why are consumers much more likely to bargain-hunt when buying low-dollar items than when undertaking one of the biggest financial commitments of their lives? According to LendingTree Consumer Savings Expert Andrea Woroch, several factors could be at work.
She says that consumers may not understand the long-term costs of compounding interest rates and could be uneducated about the amount of money they can save. Also, buyers may become so emotionally involved and drained by the homebuying process that they simply overlook the importance of interest rates.
“Consumers sometimes may be too focused on price and fail to consider the lifetime cost of interest which is really where banks and lenders make their money,” Woroch says. “Over a five-year auto loan, or thirty-year mortgage, a one percent difference between interest rates can easily translate to thousands of dollars.”
To illustrate this point, LendingTree says that third-quarter homebuyers who took the time to compare rates received an average differential of 0.32 percentage points between the lowest and highest offers. LendingTree estimates that by choosing the lowest rate, the average buyer will save about $17,000 over the loan’s lifetime.
LendingTree’s website offers a number of tips and resources for shopping for a mortgage. You should also seek the advice of your trusted real estate professional, who may be able to refer you to a lender that suits your needs.
(Image: Flickr/Scott Maxwell)