February 5th, 2015
Getting a home loan is a complex process, which is why the U.S. government goes to great lengths to ensure borrowers fully understand what they’re agreeing to before they sign for a mortgage. However, these efforts may be falling short in one key area, as a significant number of borrowers don’t know their interest rates.
This is a finding from a Bankrate.com survey, which discovered 35 percent of respondents couldn’t give a definitive answer about their mortgage rates. This portion included borrowers who flat out didn’t know, weren’t at all confident in their responses or were not too confident.
Some borrowers aren’t completely clueless
In a report on the study, CNBC noted many borrowers at least know what range their interest rates sit in. Utah homeowner Wesley Smith told the news source his lender said his rate was so low that he should frame it. However, Smith doesn’t remember the percentage. Another borrower told CNBC he’d have to check with his wife.
One analyst explained homeowners are too caught up in the excitement of owning a home to pay as much attention as they should to their interest rates. While this is understandable, especially for first-time borrowers, consumers should have a thorough understanding of all the terms they’re agreeing to when they get a mortgage.
“Your mortgage rate is one of the most important numbers in your financial life, and there’s a good chance that one of your neighbors has no idea regarding how much he or she is paying,” Bankrate.com Senior Mortgage Analyst Holden Lewis said in a press release.
Now is the time to capitalize on low rates
Borrowers should know their rates because this information is part of their borrowing contracts and can also help them save money in the future.
“Given how far mortgage rates have fallen, these people could be missing substantial opportunities to save money by refinancing,” Lewis said.
According to Freddie Mac, the average interest rate for a 30-year fixed mortgage in December 2005 was 6.27 percent. If a homeowner refinanced in December 2014, he or she could have received a rate as low as 3.86 percent, a difference of 2.41 percentage points. With a $200,000 mortgage, the difference in monthly payments would be $1,234 to $929, respectively. Considering the potential current and future savings for homebuyers and homeowners, they can’t afford to ignore mortgage rates.