Women face some financial challenges not shared by men. Women tend to live longer and face a higher probability that they might outlive their savings. They may take breaks from contributing to their retirement funds or establishing their careers to have children or care for family members. Some must overcome the daily temptation to spend all their money on fabulous shoes.
More seriously, a new report by the Consumer Federation of America says women appear more likely to receive subprime home loans when compared with men in similar financial situations.
The study looked at lending in 2005 and mortgages with interest rates over 7.66% (at a time when the average prime mortgage rate was 5.87%). About one-third of women took out these subprime mortgages, compared with about one-quarter of men.
The disparity got worse as they compared men and women with higher and higher incomes. At the point when women earned more than double the median income for their area, they were 50% more likely to receive subprime loans than men with similar earnings.
The Consumer Federation said women tend to have slightly better credit histories than men, so issues in lending may be contributing to the problem. They also noted studies that suggest women enter the lending process with less mortgage knowledge than their male peers. One solution: Women should educate themselves before seeking a home loan, which will bolster their confidence to negotiate more competitive terms and rates.
The higher interest rates that come with subprime loans makes it harder, or at least more time-consuming, to build wealth through homeownership. So, as a reminder to both genders, let's brush up on a few basics about home loans.
It's pretty simple to find the prevailing mortgage rates. If you don't see an item in your local newspaper, you can certainly find it on the Internet. In fact, you can find rates right here at The Motley Fool, with an option to search for lenders near your zip code.
Check out the prevailing rates before you talk to a lender. If the lender or mortgage broker starts offering you loans with much higher interest rates, ask them why. They probably should have a reason if the rates they quote you sound much higher than what you know to be average.
When you talk to a lender about getting a mortgage, they will factor in your credit history. That means a squeaky clean credit history is key to getting the lowest possible mortgage rate. The time to clear up problems with your credit is before you visit the lender. You don't want the lender to be the one reminding you of those late student loan payments from five or six years ago.
Pull copies of your credit reports and check them out. You're entitled to one free credit report each year from the three major reporting agencies. For one-stop-shopping, visit this portal created by those credit agencies. This exercise may remind you of credit issues in your past that you'd long forgotten about. You may also see errors or evidence of fraud that could interfere with your ability to get a competitively priced mortgage.
Also, you'll want to study up on the types of home loans available and the rate structures for each. The two mortgages known as fixed-rate and adjustable-rate will be the most commonly available. In the aptly named fixed-rate mortgage, the interest rate stays the same through the life of the loan. With an adjustable-rate mortgage -- you guessed it -- the interest rate adjusts with market forces.
However, you should also learn a little bit about the other mortgage products on the market, so you'll recognize them if a lender starts offering them to you. If you already know the pros and cons of each type, you'll be less likely to succumb to a sales pitch for a lending product that may not be in your best interest.
One such loan you might want to avoid is an interest-only mortgage. Like it sounds, you pay only interest on the loan in the early years, keeping your payments low. But the payments increase a lot when the lender later wants you to start paying down the principal.
A second type, known sometimes as "payment option" adjustable-rate mortgages, lets borrowers pay as much as they want each month as long as they meet a certain minimum payment. Here's the catch: That minimum payment may not cover the month's interest, and any leftover interest is added to the loan balance.
To make sure you get the best rate you can, you'll want to do some homework. I've brushed over a lot of the details, but you can learn a lot more in the Home Center. Here are some other mortgage resources you may want to peruse:
- Mortgage Brokers Demystified
- Mortgage-Rate Mojo
- Mortgage Traps
- When to Shop for a Mortgage
- 10 Things You May Not Know About Mortgages
Fool contributor Mary Dalrymple welcomes your feedback.