Most people think that shopping for a
mortgage means getting the best deal among five or six lenders they call. I want to give
you a better way to measure performance.
If you are getting a mortgage, you are in a "class" of about
600,000 other people who are also getting mortgages this month. I hope you agree with me
that your goal is to be among the 10% of those 600,000 people who spend the least amount
of money during the next five years. Now I can hear someone saying, "What does he
mean NEXT FIVE YEARS? I want to do a deal NOW." Please go through this with me.
When you bought your homes, every homeowner
would describe his loans as "better than average." First of all, it's not
true. Half got a deal which was better than average and half got a deal that was worse
than average - by definition. In any case, how do measure what kind of a deal you
got? Here's a better way.
The real goal is to pay the least amount of
interest. Let's take a 5 year period. Everyone has made 60 mortgage payments
and you find out how much they paid in interest to their lenders. You could then calculate
the average interest rate paid by each and then graph the results. What you'd get is one
of those bell-shaped curves that looks like this.
That group in the middle - the ones shown
in blue - represent about 50% of your neighbors and they went to the BIG, WELL-KNOW
LENDERS that have 50% market share. (That's how they go that big!) If YOU go to one of the
big, well-know lenders, you'll get an "average" loan too, just like all the
other people. The big lenders look at the market the same way as purveyors of Coke,
Chevrolets, and Tide. Lenders with huge market share are NEVER the price
leaders. That fact leads me to share this rule with you:
If you want a deal
that's better than all your neighbors, you cannot do the same thing they do. You have to
do something different.
The people in yellow - paid more
than average. It might be because they had credit problems or hard to document income and
had to go to a "B" lender. In other cases, they paid more because they got the
wrong kind of loan, say a 30 year fixed-rate loan instead of an ARM or vice-versa,
That leaves us with the group in red, the group you want to be a part of. How do you get to be one of
those people? The answer is this: those people weren't just lucky, they just were smarter
about how they got their mortgage, like getting an education.
I hope you think that method is a better
way of measuring performance.
You know what? When you state it that way,
I don't even think that's all that difficult. I will also tell you that I think that only
10% of the homebuyers go through the process that way. You know what else? I'll bet that's
why they are in that 10% who paid the least interest! What do you think?
The other reason people get poor results is
that they shop in the wrong way. For some thoughts that will help you