Borrowers spend 10 hours shopping for cars, 5 for home loans
How much time are they spending on loan research? Five hours, compared with 10 hours spent shopping for a car, according to a survey of 2,729 adults conducted by Zillow Mortgage Marketplace. That five hours is equal to the amount of time they spent researching a vacation and about the same time spent on a computer purchase (four hours).
Nearly one-third of the respondents reported that they spent two hours or less on mortgage research -- strange, considering that the average home loan costs five times as much as the average car and is 80 times more expensive than the average vacation.
"Not understanding a home loan can have catastrophic consequences," says Stan Humphries, Zillow's chief economist. He added that because lenders have greater knowledge of their products than borrowers do, "getting multiple offers from lenders and being able to compare them relative to one another is critical to leveling the playing field."
Even half of a percentage point in a loan rate, for example, can save the buyer of a $300,000 home more than $26,000 over the life of the loan, according to Zillow. The savings on a $500,000 loan may be at least $44,000.
So what's the psychology behind that methodology?
"People like to make decisions based on an emotional level," says Dr. Richard Peterson, a psychiatrist and managing partner of Santa Monica, Calif.-based MarketPsych LLP, a financial psychology marketing firm. "With cars, you can feel good about the purchase: I love the color, styling, my friends think it's a great car. A home loan is not emotional, it's all numbers. It's not emotionally satisfying." So they get the decision over with more quickly.
Peterson added that men find the multitasking involved in decision-making more difficult than women do.
"They get confused and into the 'I hate shopping' mode faster than women," says Peterson. They "think in the moment, not so much in the future." Which might explain why men doing the mortgage shopping may not consider all the repercussions of certain home-loan decisions. Chalk one up for the girls!
Apparently the message is getting through to borrowers, however. According to the Zillow survey, 16% of U.S. adults report that they have gotten or refinanced a mortgage in the last five years and two-thirds of them say they would use a different approach when getting their next home loan.
What changes do they care about? Fifty-six percent say the would like fees standardized and easier to understand; 52% seek an easier way to shop for rates; 50% want more than one quote without sharing personal information; and 19% want to learn more about the mortgage process.
Are lenders listening? I wonder. What would happen to their bottom line if consumers took their time and got really smart about mortgages?