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Mortgage Borrowers Could Save 0.62 in Interest by Shopping Around

LendingTree shows borrowers how to fight rising rates as the spring selling market heats up.

  • Homebuyers could have seen median lifetime savings of $28,890 in interest on a $300,000 loan by comparison shopping for the best mortgage rates last week.
  • This week’s Mortgage Rate Competition Index was 0.62 for purchase mortgages, up 0.21 from a year ago, and down 0.04 from last week.
  • The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.

May 30, 2018 — Charlotte, N.C.

We calculate the Mortgage Rate Competition Index weekly as the median spread between the lowest and highest APR 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 May 27, 2018, the index was 0.62, down 0.04 from the previous week.
  • How big of a deal is it to get a mortgage rate that’s 0.62% lower than the competition? Over 30 years, that could translate to $28,890 in savings on a $300,000 loan — nearly 10% of the total loan amount (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider than the purchase market in the refinance market at 0.69, down 0.02 from the prior week.
  • Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $32,158 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 $30,000 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

Global concerns push rates lower

Our Mortgage Rate Competition indexes for refinance and purchase both fell, consistent with a decline in benchmark interests rates. The 10-year Treasury has fallen back below 3% as political developments in Italy, where the president did not approve the formation of a government, heightened risk concerns and reminded everyone that the U.S. dollar is the global reserve currency. Further, St. Louis Fed President James Bullard said while  speaking in Tokyo that global rates serve as an anchor to U.S. rates, which cannot move too far above their foreign peers, primarily those in Asia and Europe. Thus, it looks like rates are in for a period of consolidation and the uptrend is in a pause, which should be helpful for the housing market.  

Data on new and existing home sales was weaker in last week’s releases. The narrative of low inventories pushing prices higher still holds in the existing market. New home sales remain in an uptrend despite the fall in April. The data is very volatile and we prefer the 3-month average to balance timeliness with information value. The 3-month average of 664,000 is at the highest level since the financial crisis. Nonetheless, supply problems will remain particularly acute for lower-priced homes. Sales for homes under $100,000 were down 13% Y/Y in April and those between $100,000 and $250,000 were down 1% Y/Y. Low inventory is the defining characteristic of the current housing market and 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 to shop for a loan first.

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, 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
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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