Despite record low interest rates, many borrowers in America are reluctant to shop for the best mortgage loan, a situation that could cost them money later on.
Looking at data from the November National Housing Survey, Fannie Mae researchers found that close to half of lower income mortgage borrowers said they did not obtain more than one quote when signing up for their current mortgage.
Comparatively, three out of four higher-income respondents explored competitive offers and said better deals would definitely have an influence on their decisions.
"Although a home purchase is the largest financial obligation most people will ever make, many borrowers do not fully understand their mortgage products and costs," said Fannie Mae chief economist Doug Duncan. "As a result, some homeowners in this position may find themselves with unsustainable payments down the road."
Fannie Mae reported that failing to shop around for a mortgage can end up costing borrowers $1,000 or more in closing costs.
The study also found that a substantial portion of borrowers do not understand certain parts of a mortgage product and are unable to provide an answer when asked the highest percentage change that could occur with an adjustable-rate mortgage over the life of the loan. About 41% of interviewed borrowers could not answer that question, Duncan's report said.
A blog post by business strategy director Steve Deggendorf on the Fannie Mae website reports this trend of leaving money on the table is even more prevalent at lower incomes (see chart below):
Deggendorf added that at higher incomes, more people reported paying what they expected at closing, to their benefit.
"Consumers who more fully understand the mortgage choices available are more likely to be better able to make effective trade-offs between cost, risk, and service offerings," Deggendorf writes. "This could help make for more satisfied consumers and help prevent future delinquencies, defaults, and foreclosures."