Harney: New loan calculator offers real parity

When you need a mortgage — whether to buy a house or refinance — what do you do? More than likely you jump online and check out competing quotes on sites that let you compare multiple offers, including interest rates, annual percentage rates and monthly payments.

That’s smart. But there’s a problem. From the information presented, you often don’t know enough about how much competing lenders intend to charge you in loan fees — origination, underwriting, processing, and various others including so-called “garbage” fees — until you actually apply and see your good-faith estimate several days later.

These fees are supposed to be woven into the APR. But sometimes differences in APRs that appear trivial — a few decimal points — can significantly affect your payments over time. Worse yet, you usually don’t know how these fees will affect your total payouts over the period of time you’re likely to retain the loan.

So even though you think you’re astutely picking the right mortgage, you end up with one costing you thousands of dollars more.

But now there’s a way to squeeze more information out of what’s displayed online — before you hand over your Social Security number, property information and credit details to any lender. Best of all, it’s free and has no commercial ties to banks, investors or anybody else who’s got money to lend.

It’s a new loan-shopping utility, debuting this week, that uses algorithms to “see through” the typical rate, APR and monthly payment quotes online. It discloses the amounts of fees that are rolled into the quote package and what they mean to you in terms of total payouts over the time you expect to be in the house or keep the mortgage.

It’s called the Loantech My Loan Cost Calculator (www.loantech.com). Here’s how it works. Say you’re shopping for a $300,000 fixed-rate 30-year mortgage. You’ve got three competing offers from lenders online that look pretty good: Lender A is offering 4 percent, a monthly payment of $1,432 and an APR of 4.055 percent. Lender B is offering the same 4 percent rate and a $1,432 monthly payment with an APR of 4.191 percent. Lender C quotes 3.875 percent with a $1,411 monthly payment and an APR of 4.042 percent. These are actual quotes of lenders pulled off the widely used HSH.com mortgage shopping site May 22.

The payments and rates are identical from two of the three and the APRs don’t look all that far apart. How to choose which is best? To which lender should you submit your Social Security number, the address of the property, and other personal financial details?

It depends on your main objective. Are you trying to:

• Minimize total monthly payments over time?

• Minimize lender loan fees and charges?

• Maximize principal payoff?

• Minimize total interest and fees?

To produce answers, the calculator directs you to choose one of the above and pick a specific time period — say, 10 years, which is roughly in the range of the traditional average holding period for a mortgage of seven to eight years.

Holding period is important because the shorter the time you keep your mortgage, the greater the impact of the fees that a lender charges you upfront.

Let’s say you want to pay the least in total interest and fees over the coming 10 years. According to the Loantech calculator, Lender B should definitely not be your choice. Even though its quoted interest rate and monthly payment are identical to Lender A, Lender B — a well-known national bank — plans to bludgeon you with $6,803 in loan-related fees compared with Lender A’s more consumer-friendly $1,983. During a 10-year period, you’d pay Lender B about $5,000 more in total interest and fees.

Of course, the key tipoff, even without the calculator, is the APR differential. But who knows how much of a ripoff in dollars is involved over a specific time period? That’s hidden.

David I. Ginsburg, who owns Loantech — an analytics firm best known for its audits of mortgage escrow accounts and adjustable-rate loan-payment calculation errors by banks — says he created the algorithms that run the calculator to remedy a major drawback in most online mortgage quotes.

“Until now,” he said, “there was no easy way for loan shoppers” to pierce the APR curtain “to determine the amount of [loan] fees” lenders were tacking onto deals.

Now there is.

Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors.