NEW YORK (MainStreet) – When 40% of consumers who are about to spend a few hundred thousand dollars on a product don’t completely understand the terms of the deal, that's a problem. Unfortunately, it’s also reality when it comes to new homes and mortgages.
A study by the London-based Nationwide Building Society (NBS) says that many borrowers are “left confused by key property and mortgage terms” and warns that lack of knowledge “could end up costing borrowers money,” though it doesn’t put a dollar sign on the potential money lost by confusing mortgage contracts.
Although the study included adults from the United Kingdom and not the U.S., we wouldn’t be surprised if similar results would have been found among American participants, especially considering that one of the first priorities of the new federal agency, the Consumer Financial Protection Bureau, was to create simpler mortgage disclosure form. Here are some specific findings from the study:
- The NBS says that more than 40% of home shoppers say they are confused by home mortgage “jargon.”
- Only 31% of those surveyed knew the term “LTV” meant “loan-to-value” – the ratio between the amount of the loan and the value of the home they’re buying.
- A quarter of those surveyed did not know that they become the owner of the property only once the sale is completed, with some believing it was when the offer is accepted, or when they had exchanged contracts
NBS executives say that not only are homebuyers in the dark on mortgage lingo, but they’re also shy about asking for explanations for various terms they don’t understand.