For most retailers, the web has proven to be a double-edged sword. It has given businesses more effective ways to market to prospective customers. But it has also given more tools and resources for online shoppers. This trend is particularly strong in the online mortgage loan industry.
Mortgage companies have embraced the power of the internet to allow lenders to market to more consumers with better precision. Instead of advertising traditionally to everyone and hoping that prospective customers will see or hear their ad, mortgage lenders can now use digital marketing channels to connect with specific target audiences.
At the same time, online mortgage loan shoppers now have more tools for comparing different loan products and providers. As mortgage loan providers flock to the internet, consumers looking for a mortgage loan have more options. But not all mortgage websites are alike, and smart shoppers need to understand the difference between the various websites promoting mortgage loans:
- Consumer banks.
The biggest mortgage lenders, in terms of volume, are major banks that offer mortgage loan products to consumers. The top four mortgage lenders in the nation, as of Q1 2012, were Wells Fargo Bank, JP Morgan Chase Bank, US Bankcorp and Bank of America. These major websites are trusted brands and allow borrowers to deal directly with the lender.
- Lead generator.
Many mortgage websites are actually lead generators. They find mortgage shoppers online, collect their basic information (lead data) and then connect them with partner lenders. Lead generators earn revenue by providing leads (potential customers) to lenders. They are usually not lenders and some of them may sell the same lead to dozens of lenders.
- Mortgage broker.
Mortgage loan brokers arrange loans for loan shoppers with partner lenders. Although mortgage brokers are not direct lenders, they do have established relationships with various lenders and are able to run comparisons for borrowers.
- Mortgage bank.
A mortgage bank is a direct lender that focuses primarily on mortgage loans. They offer many of the same mortgage loan programs as large commercial banks, but they do not engage in the other activities of regular banks.
Regardless of website type, mortgage companies must follow rate advertising guidelines established by various state and federal agencies. When lenders advertise an interest rate anywhere online, the lender must also disclose the annual percentage rate (APR), the loan amount used in the APR calculation and the loan terms.
When comparing interest rates from different online mortgage sites, pay attention to the APR in addition to the interest rate. If the APR is much higher than the interest rate, it indicates the lender charges additional fees for obtaining their loans. Interest rates can also vary depending upon the credit score of the borrower, the amount of down payment available and whether or not the property will be a primary residence or a rental. If one lender has a much higher rate than others, it’s possible the lenders are quoting different loan types.
It’s also important to know that interest rates can change throughout the day, and what is listed online may no longer be available due to interest rate market shifts. Online lenders are asked to make interest rate changes during the course of the day to avoid confusion, but aren’t required to as long as the lender posts the date the rate was originally quoted. If there are two different interest rates, make sure the rates were quoted on the same day.
Lenders can advertise interest rates for as many different loan types as they choose. Interest rates for a 15-year fixed-rate mortgage will be different than a 30 year fixed rate loan. When comparing online lenders, make sure you’re comparing apples to apples.
A mortgage lender is not obligated to guarantee any interest rate seen on the internet. They will only offer an interest rate guarantee, called a “lock,” after the loan application and credit report has been reviewed and accepted.
In addition to mortgage loan provider sites, there are also many independent online resources available for mortgage shoppers. These sites can provide unbiased tips and recommendations for consumers who are looking for the best possible mortgage loan for their home purchase, mortgage refinance or home equity loan needs.