Editor’s note: Jack Guttentag offers a mortgage network that competes with Credit Sesame’s mortgage network. He notes in this column: "Readers should be aware that Credit Sesame’s mortgage network competes with mine, which could affect my judgment despite every effort to be fair."
I recently took a hard look at Credit Sesame, which is an interesting website that offers credit monitoring, credit cards and mortgages. The site views them as interrelated parts of a whole, where credit monitoring suggests opportunities to improve the user’s financial status by changing the composition of credit cards and/or refinancing a mortgage.
The credit-monitoring function is difficult to assess without getting deeply involved in its use, which requires a commitment I couldn’t make. I am awaiting feedback from readers who have used it or plan to. Meanwhile, I can assess the credit card and mortgage parts of the site, viewed as separate lines of business.
I found Credit Sesame to be an excellent place to research and select the credit cards that best met my needs.
Credit cards are simpler, and also a lot more complicated, than mortgages.
They are simpler in that pricing is based mainly, if not entirely, on credit score, monthly purchases, and on whether the user carries a balance, as opposed to the much longer list of factors involved in mortgage pricing.
Credit cards are more complicated than mortgages in that they are subject to a variety of small-print provisions covering the annual percentage rate (APR), balance transfer fees, annual fees, cash advance fees, late payment fees, grace periods, rewards, and on and on.
Credit Sesame deals with these two aspects of credit cards by recommending the specific cards that will minimize cost to the user, based on the user’s credit score, purchase volume and balances, while also showing all the small-print provisions for every card. That is about as much help as a credit card shopper can expect.
Readers should be aware that Credit Sesame’s mortgage network competes with mine, which could affect my judgment despite every effort to be fair.
This is one of the few sites that attempts to provide useful decision support to borrowers selecting from among the different types of mortgages.
The technology used to select and display the best mortgage is slick — especially the ability to select the mortgage type and rate on a chart, and have the performance data for that mortgage pop into a table opposite. Unfortunately, the site appears sloppy with many of the critical details involved in the process.
On a refinance, the most important metric provided to mortgage borrowers is "Savings Over N Years," where savings are relative to the existing mortgage, and N is the most likely life of the mortgage. The components of "savings" are not shown, but we are told that only payment reduction and balance reduction are included.
This leaves tax savings out of the picture, which would make the total larger. And it leaves out lost interest and upfront costs, which would make the total smaller. The last omission is particularly troublesome to me.
On a purchase mortgage, "savings" relative to the existing mortgage is replaced by the "true cost" of the different new mortgages, but again, only a total is displayed. The pop-up that explains what is in the total appears unclear, and nothing is said of balance reduction or tax savings, which are important components of a true cost.
Closing-cost data are shown as a single total with no breakdown, so the borrower has no idea what is covered and what isn’t. Lender charges are not distinguished from third-party charges. A slider allows the user to change closing costs by trading off points charged by the lender against the interest rate, which seems slick but is useless when you don’t know what the closing-cost figure covers.
Borrowers considering an adjustable-rate mortgage (ARM) are told nothing about the ARM that bears on the risk of future rate increases.
In each box that shows the true cost and other features of a particular mortgage there is a "Learn More" button, which I expected to provide me with more details. Instead, it took me to a page that identified the lender providing the mortgage I had selected, with a form for me to fill out to make contact.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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