How Much Money Could You Lose by Not Shopping Around for Mortgage Rates?
by Christy Bieber | Updated July 19, 2021 - First published on April 16, 2021
Not shopping around for a home loan could be one of the costliest mistakes you make.
Since there's no one standard rate, anyone who is buying a home or refinancing an existing loan absolutely needs to do a lot of shopping around. This is especially important because a mortgage loan is for a very large amount of money. And it's paid off over a very lengthy period of time, with almost all loans taking decades to pay back.
While it may seem like a hassle to get multiple mortgage rate quotes and take the time to compare them, it's absolutely worth doing because of how much it could cost you if you opt not to shop around.
What's the price of not shopping around?
Home borrowers shouldn't consider a mortgage loan without getting quotes from at least three different lenders -- and ideally even more. This is so important because even a pretty small difference in the interest rate can have a big impact on your savings account.
Say, for example, you're taking out a $300,000 conventional loan, and one mortgage lender offers you a loan at 3.15% and the other offers you 3.45%. That may not seem like much of a difference. In fact, there's just 0.30% difference between the two options.
But the first loan would come with monthly payments of $1,289 and cost you $164,116 in interest over the life of the loan. And the second would come with a monthly payment of $1,339 and total interest costs of $181,959 over the life of the loan. You'd be stuck paying $50 per month -- or $600 per year -- more for the second loan option. And over the entire payoff time, you'd pay an extra $17,843 in interest.
An extra $50 a month is a nice meal out. Or it's money that can get you closer to maxing out your retirement accounts or accomplishing other financial goals. And $17,843 could be enough to cover a year of college for your child. You simply can't afford to waste that much money because you didn't shop around enough to find the most competitive mortgage rate.
The good news is, it's easier than ever to compare rates and terms so you can ensure you're finding the absolute best deal. Most mortgage lenders allow you to get quotes online without affecting your credit score. It takes just a few minutes to provide some basic details about your finances and see what rate you're offered.
Of course, you need to make sure you're comparing apples to apples and looking at interest, fees, and other loan terms when doing your comparison shopping. But when you're talking about saving hundreds of dollars a year and thousands of dollars over the time you're paying off your mortgage, spending a little time doing these things is well worth your effort.
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