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Mortgage Lenders Are Finding New Ways To Lower Rates

Online comparison shopping is changing everything from how we buy a new television set to how we select a mortgage, and it’s allowing some mortgage lenders to get creative in order to compete. Lenders are stripping down features of mortgages to get their rates lower.

Consumers have always been keen on scoring a low mortgage rate, but the ease with which they can comparison shop via their computers, smartphones and tablets has created an even greater fixation on the headline number, above all else. The majority of our phone calls are about rates these days, whereas before it might have been more about, “How can I get my money out fast?” or “What’s the quickest way to refinance my home?”

Brokers say the push for low rates is not a bad thing, but it has led to some confusion. While mortgage contracts used to be fairly standardized, many of them now contain various conditions and clauses, and in some cases it’s hard for consumers to differentiate various products. If you’re online trying to figure out what the rates are and why, good luck to you, because some businesses are better at disclosing fine print than others.

In some instances, in exchange for a lower rate, lenders are adding steeper penalties for paying off a mortgage early. By chasing those five extra basis points, buyers put themselves at risk of having to pay thousands more in penalties later on down the road. Prepayment privileges also allow borrowers to pay more than their regular mortgage payments without penalty in order to get out of debt faster.

But some lenders may reduce how much money borrowers can repay in exchange for a rate reduction. It’s not surprising that lenders are lowering their rates given how competitive the mortgage market has become.

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