Homebuyers Still Do Not Understand High-Risk Mortgages
May 4th, 2011
In a recent poll from Zillow, surprisingly high numbers prospective homebuyers did not understand how adjustable rate mortgages (ARMs) work, answered basic questions about mortgage information wrong and did not understand that lender fees are negotiable and vary by lender. 44 percent admitted outright that they are “not confident in their knowledge of mortgages or the mortgage process”[1]. Zillow Mortgage Marketplace Director Erin Lantz is concerned. “Most people wouldn’t jump out of a plane if they didn’t know how to use a parachute,” she said; “yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages.”
Perhaps most disconcerting is that most borrowers do not seem to realize that the mortgage market is a competitive, open business arena[2]. 55 percent did not realize mortgage rates vary throughout the day, while 34 percent were not aware that they could shop and negotiate rates and lender fees. Around 42 percent of prospective homebuyers polled were not aware that anyone other than a first-time homebuyer could qualify for FHA loans.
There has been a lot of media coverage about lenders taking advantage of home buyers. Do you think that this surprising lack of awareness is a symptom of this problem, or do home buyers have a responsibility to educate themselves before borrowing?
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[1] http://nationalmortgageprofessional.com/news24947/homebuyers-still-clueless-about-mortgages
[2] http://www.ocregister.com/articles/borrowers-298943-poll-basics.html
May 4th, 2011 at 6:58 AM
One idea that might help. All the “Legalese” in the contracts should have “Human Speak” added. If people could read and understand the terms, a lot of the problems associated with contracts could be avoided.
Jim Myers