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Half of prospective homebuyers don’t understand
mortgage basics, a new national pool by hometracker
Zillow shows, indication that many borrowers taking
out loans could be making costly mistakes. Highlights:
• Homebuyers answered basic questions about
mortgage information wrong 46 percent of the time.
• 57 percent of prospective homebuyers do not
understand how adjustable rate mortgages work. When
asked if interest rates on 5/1 ARMs always reset
higher after five years, the majority of homebuyers
answered yes. “In fact, the interest rate will adjust
to the prevailing rate after five years, even if rates
have declined,” Zillow’s Jill Simmons says.
“Currently, many borrowers whose ARMs have recently
reset have LOWER interest rates than they did when
they took out the loan”.
• 55 percent of prospective home buyers don’t know
that mortgage rates vary throughout the day and can
change quickly, similar to how stock prices can.
• 34 percent of the prospective homebuyer
respondents didn’t understand that lender fees are
negotiable and vary by lender. They thought the law
requires lenders to charge the same fees for credit
reports and appraisals, when in fact homebuyers can
shop around for the lowest fees.
• 42 percent of the polled prospective homebuyers
didn’t know that Federal Housing Administration loans
are available to all buyers. Instead, they thought
only first time buyers qualify. “FHA loans can cost
less for many buyers, including repeat buyers with low
to average credit scores and with down payments of
less that 20 percent,” Simmons says. She notes that
FHA loans do adhere to conventional loan limits, which
in Orange County is $729,000.
Most people wouldn’t jump out of a plane if they
didn’t know how to use a parachute, yet each year many
buyers commit to the largest loan they will take out
in their lifetimes without understanding essential
information about mortgages. By simply spending a few
hours researching how a mortgage works, and by
shopping around for the most competitive rtes and
fees, buyers can save a lot of money.
Original Article from Marilyn Kalfus, OC Register, May
8, 2011
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