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$25,880 in Savings Possible for Homebuyers Shopping Around for a Mortgage

LendingTree shows borrowers how to fight rising rates by getting competing offers from lenders.

  • Homebuyers could have seen median lifetime savings of $25,880 in interest on a $300,000 loan by comparison shopping for the best mortgage rates last week.
  • The Mortgage Rate Competition Index measures the median spread between the highest and lowest APRs available on the LendingTree platform.

July 24, 2018 — Charlotte, N.C.

Each week, LendingTree calculates the Mortgage Rate Competition Index as the median spread between the lowest and highest APRs offered by lenders in our marketplace. By calculating this spread, we hope to show consumers how much they stand to save by comparing rates during the lending shopping process.

Purchase loans

  • Across all purchase loan applications on LendingTree for the week ending July 22, 2018, the index was 0.56, unchanged from the previous week.
  • How big of a deal is it to get a mortgage rate that’s 0.56% lower than the competition? Over 30 years, that could translate to $25,880 in savings on a $300,000 loan (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider than the purchase market in the refinance market at 0.67, down 0.01 from the previous week.
  • Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $31,050 by shopping for the lowest rate.

Other findings

  • Average savings in 2018 are outpacing 2017 savings, up to $28,000 from $21,000 for purchase mortgages. Refinance loan savings are up to $31,000 from $26,000.
  • The Mortgage Rate Competition has widened as rates increased, reflecting how mortgage lenders have unique business circumstances that impact how they change the rates at which they can offer consumers loans.

Mortgage Savings Tracker

LendingTree Mortgage Savings Tracker

Mortgage Rate Competition Index

LendingTree Mortgage Rate Competition Index

The economy is robust

Data on the economy is coming in particularly strong as we are likely at the peak of the initial impacts of the tax cuts and fiscal stimulus. The labor market’s strength was reflected in last week’s data for initial jobless claims, which were the lowest in nearly 50 years. This week, Friday’s data on GDP growth is expected to be above 4%, which would be the strongest since Q3 2014. Growth is being driven by robust consumer spending as confidence is high due to the labor market strength. Business investment is also foreseen to contribute as firms put their tax windfalls to work.

Data on the housing market is expected this week as well. Existing home sales were released Monday morning and fell for a third consecutive month, to 5.38 million at an annualized rate. Inventory remains a challenge and this helped push median prices up to a record $276,900. Data on new homes will be out on Wednesday.

Low inventories pushing prices higher is the theme of this year’s housing market. Supply problems are particularly acute for lower priced homes. While overall sales were down 2.2% in June, homes under $100,000 were down 18% Y/Y in June and those between $100,000 and $250,000 were down 7% Y/Y. Rising rates and prices are only marginally tempering demand, which is supported by a robust labor market, thus buyers should do all they can to position themselves competitively. Getting financing in place ahead of the house hunt is crucial, and we strongly advise buyers compare multiple loan offers first.

About 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 the index is formulated

A mortgage shopper enters their information on LendingTree.com. They input loan variables, including the proposed amount and down payment, and property variables, including property type and location. Using our proprietary algorithm, LendingTree matches borrowers with lenders based on the criteria they provided. 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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