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LendingTree Reveals Cities Where Borrowers Save the Most by Shopping Around for Mortgage Loans

New LendingTree study analyzes the savings available by comparing mortgage rates across the country

Each week, LendingTree releases the Mortgage Rate Competition Index, a gauge that shows consumers how much they stand to save by comparing rates when they apply for a mortgage. The index is calculated on a national level to give an indication of the general dispersion of mortgage rates throughout the United States.

You may have heard the phrase “all real estate is local.” It turns out mortgage markets have a strong local component, too. Lenders need to be licensed in each state that they do business, and even many national lenders will have a home bias, originating more loans closer to home. This means that different parts of the country face different mortgage markets in terms of the number and types of lenders, and how their business strategies affect the availability of financing to potential borrowers.

To assess how different markets behave across the country, we created Mortgage Rate Competrition Indexes for the 50 largest cities in the country. The methodology is similar to the national index, the only change being that the city indexes are calculated on a quarterly basis.

Key findings:

  • Tampa, Kansas City, Portland and New York are the cities where homebuyers saw the biggest rate savings by comparing competing offers. Rates in Tampa had a range of 0.62 followed by Kansas City, Portland and New York at 0.61.
  • California is where comparing mortgage offers before buying saved the most money. By comparing offers and securing a lower rate, you’re automatically saving money over the term of your mortgage. Larger loan sizes fuel savings of $65,030 in San Francisco, $42,659 in Los Angeles and $42,315 in San Diego.
  • Significant savings for purchase borrowers in every city. The index ranges from 0.49 in Tulsa to 0.62 in Tampa.
  • Monthly savings up to $254. For borrowers in San Francisco, a spread of 0.58 translates into a potential savings of $254 per month given the median home price of $900,000 — the highest monthly savings we found.
  • Even less expensive cities register meaningful savings. In Detroit, a low median home price of $150,000 and narrow spread of 0.54 still add up to $9,952 in lifetime interest savings. Only Tulsa joins Detroit in having savings below $10,000.
  • The proof is in the pudding. Our method uses median values, so half of borrowers would see smaller savings, but just as importantly, half could see larger savings. There is no way for a borrower to know where they fall in this spectrum without shopping around, so it is imperative to compare lenders and assess their offers.
  • Competition is influenced by the density of bank branches. Cities with less banks per capita had wider refinance indexes.

 

The metros where PURCHASE borrowers face the LARGEST differences in purchase mortgage rates

Tampa, Fla.
Purchase Mortgage Rate Competition Index: 0.62
With a median home price of $225,000 borrowers here could save $67 in monthly payments adding up to $809 a year. Lifetime interest savings would be $17,291.

Kansas City, Mo.
Purchase Mortgage Rate Competition Index: 0.61
With a median home price of $197,800 borrowers here could save $59 in monthly payments adding up to $705 a year. Lifetime interest savings would be $15,061.

Portland, Ore.
Purchase Mortgage Rate Competition Index: 0.61
With a median home price of $276,400 borrowers here could save $82 in monthly payments adding up to $983 a year. Lifetime interest savings would be $21,011.

The metros where PURCHASE borrowers could save the MOST in lifetime interest expense

San Francisco
Lifetime Interest Expense Savings: $65,030
An index of 0.58 and median home price of $900,000 adds up to savings of $254 in monthly payments, totaling $3,046 a year. The calculation assumes an 80% LTV.

Los Angeles
Lifetime Interest Expense Savings: $42,659
An index of 0.58 and median home price of $595,100 adds up to savings of $167 in monthly payments, totaling $1,998 a year.

San Diego
Lifetime Interest Expense Savings: $42,315
An index of 0.56 and median home price of $607,000 adds up to savings of $165 in monthly payments, totaling $1,983 a year.

The metros where REFINANCE borrowers face the LARGEST differences in refinance mortgage rates

New Orleans
Refinance Mortgage Rate Competition Index: 0.72
With a median home price of $204,300 borrowers here could save $71 in monthly payments adding up to $856 a year. Lifetime interest savings would be $18,335.

Salt Lake City
Refinance Mortgage Rate Competition Index: 0.72
With a median home price of $293,000 borrowers here could save $102 in monthly payments adding up to $1,226 a year. Lifetime interest savings would be $26,258.

Indianapolis
Refinance Mortgage Rate Competition Index: 0.69
With a median home price of $173,700 borrowers here could save $58 in monthly payments adding up to $693 a year. Lifetime interest savings would be $14,818.

The metros where REFINANCE borrowers could save the MOST in lifetime interest expense

San Francisco
Lifetime Interest Expense Savings: $71,522
An index of 0.64 and median home price of $900,000 adds up to savings of $279 in monthly payments, totaling $3,346 a year.

San Diego
Lifetime Interest Expense Savings: $48,704
An index of 0.65 and median home price of $607,000 adds up to savings of $190 in monthly payments, totaling $2,278 a year.

Los Angeles
Lifetime Interest Expense Savings: $47,947
An index of 0.65 and median home price of $595,100 adds up to savings of $187 in monthly payments, totaling $2,244 a year.

What drives the difference in the competition index across cities?

As we stated earlier, different lenders operate in different parts of the country, and even national lenders have different strategies in different areas. To try and assess the number of lenders in each metro, we looked at the density of bank branches. That is, the number of bank branches divided by the population. Even though the mortgage market is now almost evenly divided between non-banks and banks, and many loan originations are now online, the distribution of bank branches is still indicative of the how competitive financial services are.

Our findings revealed that in the refinance market, cities with fewer bank branches had wider spreads in rates. This relationship did not hold for purchase mortgages. Refinance transactions tend to be more price sensitive, as the loan is the primary product. In a purchase transaction, the loan, though essential, is a secondary product to the home and thus less price (interest rate)-sensitive.

 

 

What is the Mortgage Rate Competition Index?

The LendingTree Mortgage Rate Competition Index is a new proprietary measure of the dispersion in mortgage pricing. It measures the spread in the APR of the best offers available on LendingTree relative to the least competitive (i.e. the highest) rates. Our research shows that mortgage rate competition varies with the financial and operational measures of activity in the mortgage markets. More details on the index are available in a white paper on LendingTree’s website.

How is the index formulated?

A mortgage shopper enters their information on LendingTree.com. They input loan variables including the proposed amount and down payment, property variables including property type and location and personal information including income. LendingTree transmits this data, including a soft credit inquiry, to lenders who evaluate the borrower against their lending parameters in their pricing engines. Interested lenders return a rate and fee offer. For our index, we combine the rate and fees into an APR and calculate the spread as follows:

Offers APR
Lender 1 4.21
Lender 2 4.33
Lender 3 4.40
Lender 4 4.55
Lender 5 4.62

 

The spread is the difference between the highest and lowest offers, in this example, 4.62-4.21 = 0.41. We repeat this calculation across 30-year loans that week and then find the median of the individual spread, which is our index value for that week. This is done separately for the population of purchase and refinance loan requests.

Download The LendingTree Mortgage Rate Competition Index White Paper

 

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