The average American will pay $1,267 in excess interest on their home mortgage in their first year alone. This means that homeowners that secure financing in 2018 will eventually waste over $140,000,000,000 throughout the life of their loan! Massachusetts residents, who historically comprise 3% of the national market, will account for over $4,200,000,000 of that waste.
You’re probably wondering, how is this possible? How can mortgage lenders continue to take hundreds of billions of dollars out of the pockets of homebuyers?
In my article, “3 Reasons Why You Are Overpaying For Your Mortgage”, I explain how the mortgage industry continues to overcharge consumers. Most lenders would likely never admit the following:
- Banks and mortgage companies (e.g. Wells Fargo and Guaranteed Rate), make more money when consumers close with higher interest rates. Lenders are incentivized to charge the highest rate possible without losing the customer.
- Mortgage Loan Originators (MLOs) are paid a commission that is rolled into the cost of your loan. Essentially, you are paying the MLO’s commission over the life of your loan.
- MLOs are granted authority to set the interest rate, no matter what rate their company recommends. That’s a lot of power and their discretion can impact you significantly.
Two years ago, we set out on a mission to save people money when financing their home. Today, I’m proud to report that we saved our consumers over $3,500,000 in 2017. While this may seem like a drop in the bucket compared to the industry-wide waste, we're incredibly proud of the number because of what it has meant to each of our customers. However, now its time for us to up the ante.
$10,000,000. That’s the goal for 2018.
Here’s how we are counting progress on our resolution: If you are refinancing with us, we will calculate the savings from your current rate to the new rate. If you are purchasing with us, we will either take the difference between our quote and a competing rate, or we will calculate savings compared to the national average.
And we want to help everyone, not just those who eventually become our customers. It's bittersweet, but many people who receive a quote from us have it matched by a competing mortgage lender, and we lose the deal. There are dozens of reasons why this happens, from existing relationships we can’t break to just plain old inertia.
That said, we’ve made an important decision: We are here to help every homebuyer we can, customer or not. So, we're okay with losing one particular loan if we help you save money in the process. We think that doing the right thing and treating others the way that we would want to be treated ourselves will pay dividends in the long-term.
In fact, it’s these values that drove me and Mike Tassone to co-found RateGravity. As two former bankers, we decided that we could no longer sit by and watch consumers destroy their wealth every day by overpaying on their mortgage. Instead, we built a company that puts the consumers’ interests first.
We think of all the things that people can do with this extra money: Start on home improvements, save for retirement, save for their children’s education, take that dream vacation, perhaps raise an Olympian, or just buy themselves some extra piece of mind. The possibilities are endless.
We will be tracking this and publishing this for everyone to see, and hope that you join us in this mission. Regardless of where you may be in the buying or refinancing process, schedule a no-sell consult with us for a purchase or a refinance. We promise to help you secure a fair deal, and if you already have a lender, we'll give you the information you need to hold your existing MLO accountable and negotiate better terms.
All we ask in return is that you join our movement and allow your savings (not anything else) to be counted in our goal of $10,000,000.
*The Mortgage Bankers Association reported that the average loan size of new homes in December 2017 was $339,203. Using this loan amount, when you compare a 30 year fixed rate mortgage at 3.875% to 4.25%, the excess interest paid in the first year is $1268.63. When you apply the interest rate delta to $1.8T in home loans (the 10-year average origination volume according to Freddie Mac), the amount wasted over the life of these loans exceeds $140B.