Survey: Frustration Makes Mortgage Shoppers Make Poor Choices

Apparently most Americans would not get out of their comfort zone even if that would help them secure, or make more affordable, the so-called American dream of homeownership.

So much so that according to a new survey released by LendingTree of Charlotte, N.C., while 96% of American consumers routinely compare prices when shopping—for anything and everything available for sale—almost 40% of them obtain just one home loan quote.

They stop there even though up to 91% of these home shoppers are fully aware that interest rates vary between lenders.

Irritation is at the root of the home shopping dilemma for 70% of the borrowers surveyed who said they find “shopping for a mortgage frustrating.” More specifically, 21% cite the complexity of the terms as the main source of their frustration and 20% the time-intensiveness nature of the process.

Conducted online with 1,317 homeowners by Harris Interactive in September, the survey reveals it is a myth to believe that information access is all customers need.

It shows that today’s expert comparison shoppers who when shopping for a home computer research an average of 3.1 models before making a purchase often turn into borrowers who lock in their first home loan offer.

It is free choice exercised before starting any communication with the lender. Yet, the survey found that fewer than three out of 10 consumers “feel very confident they received the best deal on their current mortgage.” In other words, they would rather complain about it later.

Other findings based on the behavior of this nationally representative sample of current homeowners who were involved in shopping for their home loan show 85% of consumers use the Web to comparison shop, but only 21% shopped online first for mortgage rates.

It indicates the mortgage industry is still far from providing adequate financial education nor is it effectively catering to the psychological needs of their mortgage customers.

Doug Lebda, chairman and CEO of LendingTree, described this customer behavior as “a gamble that leaves many borrowers uncertain they’ve received the best deal on their mortgage.”

About 23% of the surveyed homeowners recognize they could save over $100 a month by reducing their mortgage rate by 1%. (For example, a borrower can save $208 monthly if the interest rate on a $250,000 loan drops from 5.5% to 4.5%.)

Most importantly, Lebda says, research findings clearly show that homebuyers and homeowners “need help navigating the often complex world of home loan financing.”

Up to 72% of homeowners spent the equivalent of a full working day or less shopping for their home loan. LendingTree also reports, “One in 10 spent the amount of time it takes to brush their teeth.”
Findings indicate lenders need to further simplify the mortgage process for borrowers who out of frustration spend minimal time to make a decision that will affect them for the next 15 to 30 years.

Since its inception as an online lender exchange and personal finance resource, LendingTree has facilitated over 28 million loan requests and $214 billion in closed loan transactions. The goal, Lebda says, was to empower customers by bringing competition to the market so “each and every borrower is confident they’ve received the best possible deal on their mortgage.”

These new findings are a wake-up call for the industry as it develops future strategies that aim to improve lender-borrower communication and experience.

For example, “Look Before You Lock” is one of the tools LendingTree said it has designed “to ease borrower frustration and instill confidence in the process,” by helping homebuyers determine if their current loan offer is a good deal by comparing it to offers received by similar LendingTree customers.