You know the saying "the rich get richer?" There are a lot of reasons why that is true, but one is that the wealthy tend to know how to get and use information. When it comes to mortgage shopping, anyone with Internet access can use the same information wealthy people use when they shop for mortgages -- and that could save you money over the life of your loan.
As popular as online mortgage tools have become, they are still under-utilized relative to their potential to help people save money and manage their finances. One reason appears to be the income gap, according to a recent study by mortgage finance company Fannie Mae. Wealthy people are more likely to use online tools to find the best mortgage rates and calculate payments, but that is one advantage lower-income home buyers can and should claim for themselves.
Mortgage Shoppers Are Becoming More Tech Savvy
Despite the growth of online mortgage tools, a surprising number of shoppers neglect to use them. The Fannie Mae survey found that only about half of recent mortgage borrowers had gone online to get quotes, compare mortgage rates, and calculate payments.
Still, at least this figure is improving. Among borrowers who obtained their mortgages more than three years ago, only about a third used online tools to help with their decisions.
One lingering problem is that even as the use of online mortgage tools grows, lower-income borrowers seem to be getting left behind.
Lower Income Buyers Are Getting Left Behind
The Fannie Mae survey found that only 20 percent of mortgage borrowers with incomes under $50,000 had gone online to obtain a mortgage quote. That percentage jumps to 38 percent for borrowers earning between $50,000 and $100,000, and jumps again to 48 percent for borrowers earning over $100,000.
Part of this can be explained by the amount of Internet access different income groups have. According to data from the US Census Bureau, 96 percent of US households with incomes over $50,000 have access to the Internet somewhere (e.g., at home, work, or public library) compared with just 71 percent of households with incomes under $50,000.
Still, that lower level of Internet access does not explain why only 20 percent of lower-income borrowers use online tools to get mortgage quotes when potentially 71 percent of them have access to those tools. Getting the most out of your dollar is one way to level the playing field between higher and lower incomes, and that's where online mortgage tools can help.
Using Online Tools to Level the Playing Field
Here are some tips on how online tools can help level the income playing field:
- The mortgage business is not personal. Compared to people making less than $50,000 a year, higher-income borrowers are more likely to base their selection of a lender on who offered the best terms, while lower-income borrowers were more likely than higher-income borrowers to rely on referrals from friends or real estate agents. The mortgage business is not personal; it is a numbers game. A referral won't get you special treatment or terms. Search online and choose a lender by the numbers.
- Calculators can be the key to understanding mortgages. Lower-income borrowers are more likely than higher-income borrowers to say that it would have helped their decision if loan terms and costs had been easier to understand. And yet, lower-income borrowers are less than half as likely as higher-income borrowers to use an online calculator to figure out what they can afford. Mortgage terms are confusing in the abstract, but a mortgage calculator can lay out your entire payment schedule for you in dollars and cents so you can see what you are facing.
- Compare mortgage rates to get the best terms. Mortgage rates vary from lender to lender, and getting the best mortgage rates will make a different to your budget every month for years to come. It is a powerful advantage to have, and online tools make it easy to find and compare mortgage rates.
It is not easy to close the income gap, but if you use online tools to shop for mortgages the way wealthy people do, you could find yourself one step closer.