Michael Estrin: 4 common mortgage errors and how to avoid them

Many people make expensive, easily avoidable mistakes when shopping for a mortgage.

"Borrowers who don't do their homework often end up paying more than they should, and in some cases that extra cost can really hurt," says Paul Sian, a real estate lawyer and Realtor with HER Realtors in Cincinnati.

A study from the Consumer Financial Protection Bureau concludes that many consumers don't shop for mortgages, and they tend to get their mortgage information from lenders and real estate agents, who aren't impartial.

According to Sian, borrowers tend to fixate on the home's purchase price, and secondarily, the loan's interest rate. But factors like closing costs, the loan's total price tag, whether the loan is fixed or variable, and whether the borrower is required to get private mortgage insurance can dramatically alter what borrowers end up paying.
More coverage
Reverse mortgages are due when borrowers die
Change: Where it occurs, and where not

Following are four common mortgage errors and tips for avoiding them.

Shopping just one lender

Whether it's a new car or the latest gadget, consumers know it pays to shop around for the best deal. But half of mortgage borrowers consider just one lender or broker in their shopping process, according to the CFPB study.

"It is a good idea to shop around for mortgages in order to get better rates," Sian says. "Sometimes large banks and lenders don't offer the best rates that can be had. Additionally, some lenders add in fees. While the final fees do show up at the end, many borrowers don't understand the fees and accept them as the cost of getting the loan, even though they could've avoided those fees by shopping around."

A small difference in the interest rate can make a big impact on cost. On a $200,000 fixed-rate, 30-year mortgage, an interest rate of 4.5 percent costs $59 a month more than a 4 percent rate. That adds up to $3,512 in the first five years.

The lower interest rate means the borrower would pay off an additional $1,421 in principal in the first five years, even while making lower payments.

Read more at http://www.philly.com/philly/business/real_estate/residential/Michael_Estrin_4_common_mortgage_errors_and_how_to_avoid_them.html