How The Internet Is Changing Mortgage Rates

A new study from the National Association of Realtors tells us that lots of people are shopping for mortgages online, especially if they're young.

According to the just-released study, Home Buyer and Seller Generational Trends, 13 percent of all prospective buyers qualified for a mortgage online. However, the numbers change when you look at age: Only 2 percent of those aged 68 and above qualified online while 22 percent of those age 33 and younger qualified online. That's an 11-to-one difference.

The use of online sites to obtain a mortgage contrasts with the use of the Internet to find a home. NAR says that 42 percent of all buyers first looked online to find a house.

So why the difference?

One issue is plainly age: Younger borrowers, individuals who have grown up in the Information Age, are plainly more comfortable with the Web. That's to be expected as information habits shift over time from traditional print media to online sites.

A second issue is the nature of real estate. A home impacts a variety of the senses: You can see it, touch it, hear it creak when walking up the stairs and smell cookies in the oven. There is a tactile element to real estate, something which is easy to understand. In comparison, how do you show a mortgage? The cues we employ when looking at a home are largely missing when we consider real estate financing, so online mortgage shopping has had to evolve so borrowers can see it as a viable option offering choice, transparency and the opportunity to better understand the market.

Mortgage Rates and Competition

In the generational trends study, NAR does not say how many loan options were reviewed by prospective borrowers who did use the Internet. This is important because today online shopping online is quick, simple and effective, just look at how the Internet has made hotel and airline prices more transparent, car prices more competitive and book prices lower.

Getting a single mortgage quote plainly violates the whole thrust of Internet shopping, the ability to compare offers. Transparency is the new buzzword of the day and actually it's quite appropriate, it means consumers have the ability to understand a product or service, that they can readily compare costs and easily communicate with providers and suppliers. For instance, look at eBay and LendingTree. eBay is a bidding service, a sort of online auction, where sellers offer goods and interested buyers compete. LendingTree is a mortgage platform, another sort of online auction, where lenders compete for borrowers based on selected criteria such as location, loan size, and credit standing. In both cases competition allows sellers and borrowers to test the market a transparent manner.

It's entirely likely that future NAR preference studies will show an increasing use of online mortgage sites. That's because each new generation will be more and more comfortable with online shopping and the transparency it offers.

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