Do Mortgage Comparison Tools Make the Home Buying Process Easier?

Purchasing a home is one of the most significant financial decisions that most people make. It requires careful planning and consideration. And securing the right mortgage is a crucial part of the process, but it can also be a challenging task.

There are seemingly endless mortgage options available, and different lenders offer varying terms and conditions. It can be a daunting task to find the perfect option for your needs.

However, the introduction of online mortgage comparison tools has made the process much more straightforward. These tools allow you to compare and contrast mortgage offers from multiple lenders so you can ultimately be more confident that you’re making the right choice.

The Benefits of Mortgage Comparison Tools

With online mortgage comparison tools, you can quickly and easily compare different mortgage rates, terms, and fees from multiple lenders. While not a comprehensive solution, mortgage comparison tools can provide a valuable starting point in the home buying process.

Some benefits include:

Saving Time and Effort

By aggregating mortgage offers from various lenders, these tools save users the time and effort of visiting each lender's website individually.

Facilitating Informed Decisions

Mortgage comparison tools help homebuyers understand the differences between various loan options, including interest rates, loan terms, and fees. This can help borrowers make more informed decisions about which mortgage is best suited for their needs.

Customization

Certain mortgage comparison tools allow users to input specific information about their financial situation and home preferences, providing tailored results based on their needs.

Simplicity

These tools may present complex mortgage information in a clear, easy-to-understand format, making it simpler for users to compare options.

Encouraging competition

By providing transparent information on the mortgage market, comparison tools can help drive competition between lenders, potentially leading to better loan offers for consumers.

Mortgage Comparison Tools: the Downsides

It is important to note that mortgage comparison tools have some limitations.

Incomplete Database

Some tools may not include every lender in the market, so borrowers should still do additional research to ensure they have considered all available options.

Missing Details

Mortgage comparison tools may not capture all the nuances of a specific mortgage offer, such as special promotions or borrower-specific factors that could impact eligibility.

Despite these limitations, mortgage comparison tools can make the home buying process easier by streamlining the search for the right mortgage and providing valuable information to help borrowers make informed decisions.

Knowledge Gaps

There are different ways to calculate a credit score, but many lenders use the FICO credit scoring model or a VantageScore to determine a borrower’s eligibility for a loan. A FICO credit score or a VantageScore generally assigns each borrower a score between 350-850, which helps lenders to weigh the risk of loaning money to a person. Depending on your score, you may be told you have Great Credit, Good Credit, Fair Credit, or Poor Credit.

Borrowers who aren’t well-versed in how credit scoring works may mis-estimate or misinterpret their score and what it means, which can lead to incorrect pricing and estimates when using a mortgage comparison tool.

Artificially Low Rates

Some lenders may post rates that are not widely available to consumers. This may encourage potential borrowers who aren’t a good fit to apply for these loans. It’s important to only apply for a mortgage loan that is a good fit, since applying for too many loans or lines of credit in a short period of time can negatively impact your credit score.

How Does a Mortgage Comparison Tool Work?

Every mortgage comparison tool should provide you with a bare minimum of the following pieces of information for all lenders with which they are associated.

Mortgage Rate

This is the interest rate charged by a lender on a home loan. This is usually expressed as an annual percentage rate (APR). The mortgage rate determines the amount of interest a borrower will pay on the outstanding balance of their mortgage each year.

A variety of factors will determine your mortgage rate, such as the current economic conditions, an evaluation of your financial situation reflected in your credit score, the loan term, and the percentage of the purchase price you pay up front in the form of a down payment.

The type of loan you receive will also impact your mortgage rate. There are two main types of mortgage loans:

1. Fixed-rate Mortgages

With this type of mortgage, the interest rate remains constant throughout the entire loan term. This means that the borrower's monthly payments will stay the same over the life of the loan, making it easier to plan and budget for the future.

2. Adjustable-rate Mortgages (ARMs)

With ARMs, the interest rate can change periodically, instead of staying the same over the life of the loan like fixed-rate mortgages do. ARMs usually have an initial fixed-rate period, after which the rate adjusts at specified intervals. The adjustments can cause monthly payments to rise or fall, depending on the direction of interest rate index the loan is benchmarked against (typically the U.S. Department of the Treasury or Secured Overnight Financing Rates).

Mortgage Lenders

Mortgage lenders are financial institutions or individuals who provide loans to individuals or businesses to purchase real estate property. Residential lenders include banks, credit unions and mortgage companies.

It’s important to look into the mortgage options available to you from both small, local lenders and large, national or international ones. Sharing the favorable terms you received in an offer from one lender in order to negotiate an even better deal with another lender is key to getting the best deal possible.

Mortgage Term

The term is the length of time you have to repay your mortgage loan. The most common mortgage terms are 15 years and 30 years, although other terms might be available to you, as well.

Generally speaking, the less time you allow yourself to pay off the loan, the more likely you are to receive a lower rate than if you select a longer loan term. So, if you can afford the higher monthly payments that come with a 15- or 20-year mortgage, you can save a considerable amount of money over the lifetime of the loan. Any good mortgage comparison tool should provide you with multiple mortgage term options.

Mortgage Fees

These are the costs associated with obtaining a mortgage loan from a lender. These fees can include various charges and expenses that borrowers are responsible for paying during the mortgage application process.

It’s important to remember that mortgage lenders are in the business of attracting and negotiating with customers. This means it is incumbent upon you to use whatever leverage you have to obtain better terms with your chosen lender.

For example, adjusting the amount you want to borrow, the amount of time you need to repay the loan, or the size of your down payment can work to tip the terms of your mortgage loan more in your favor. Long story short, it always pays to negotiate.

Do Your Homework

Mortgage comparison tools provide a great way for potential homebuyers to find the right mortgage lender. However, not all comparison tools are created equal, and some offer additional features to help you make a more informed decision.

These tools often provide customer reviews and ratings that offer valuable insights into the quality of the lender's service. These additional features can help you make the best decision for your financial needs.

Reading reviews and ratings from other customers who have worked with the lender is a crucial part of using a mortgage comparison tool. These reviews often give insights into the lender's communication, responsiveness, and transparency, and can help you gauge the lender's overall quality.

By looking at the experiences of others, you can make a more informed decision on the lender's reliability.

Some mortgage comparison tools also provide expert advice from mortgage professionals. These experts can help you navigate the complex process of getting a mortgage and help you find the best lender for your needs.

They can also offer advice on how to improve your credit score, negotiate a better interest rate, and make sure you are getting the best deal possible. With the help of these experts, you can make the most informed decision about your mortgage lender and your overall financial future.

Bottom Line

Using a mortgage comparison tool can make the home buying process easier, quicker, and less stressful. By providing you with a range of options and helpful tools to compare and contrast them, these platforms can help you find a mortgage that fits your needs and budget without breaking the bank.