Could your mortgage rate be lower?

As prices rise and rates fall to lowest levels since 2013, the Consumer Financial Protection Bureau launches a 'rate checker'

By Bloomberg News

Jan 22, 2015 @ 5:18 am EST

Buying a house is expensive, and not just because U.S. home prices are back to early-2008 levels. Mortgage interest compounds the cost, and over the life of a loan, small differences in an interest rate really add up. The best way to save, then, is to shop around for the best rate possible, but a new survey by the Consumer Financial Protection Bureau (CFPB) finds that half of homebuyers consider only one lender or mortgage broker. That's particularly unimpressive considering that typical shoppers will spend at least four hours choosing a new computer.

Then again, picking a PC is a lot easier than picking a mortgage. The mortgage application process can be confusing and, for people with complicated finances, grueling. It typically takes two months for a lender to close a mortgage, says Christine Pratt, senior analyst at the Aite Group. “It's a very unwieldy process,” she says, and many borrowers are happy to stick with a bank they trust or pay a mortgage broker extra to handle all the paperwork.

The process has gotten worse in recent years, especially for buyers with imperfect credit or unsteady incomes. Banks tightened their standards after the financial crisis. And, in regulations approved a year ago, the CFPB insisted that banks go extra lengths to prove borrowers have the income to cover their payments. “The guidelines are so meticulous that customers do have to be overly prepared,” says Staci Titsworth, regional manager at PNC Mortgage.

What home buyers save in hassle they may pay in interest. On a 30-year, fixed-rate, $350,000 loan, an interest rate of 4.25% will cost $100 more per month than an interest rate that's just 0.5 points lower. After five years at the higher rate, the homeowner would have paid $6,000 more in mortgage interest and paid off $2,500 less in principal.

The CFPB is launching a Rate Checker website that lets home buyers see what lenders in their area are offering to buyers with their credit score. It may not help. Some people may always choose to trade money in the distant future to avoid aggravation now. A study last year found that one in five homeowners eligible to refinance their mortgages hadn't done so, at a median cost to homeowners of $11,500 over the time they're likely to own their homes, or a total of about $5.4 billion.

Luckily, with mortgage rates last week at their lowest since May 2013, homeowners can still rectify past mistakes. And the worst-case scenario isn't that bad. Today's “expensive” mortgages are still some of the cheapest in history.

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