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Study: Cities Where Purchase Borrowers Saved the Most by Shopping for a Mortgage – Q1 2020

As interest rates change, so do the savings you can reap from shopping around for a mortgage. To help consumers understand how much they can save, LendingTree created a Mortgage Rate Competition Index. It measures the basis point spread between high and low annual percentage rates, or APRs, offered to users through the LendingTree marketplace through the first quarter of 2020.

If you’re buying a home in San Francisco, taking the first mortgage offer you receive without shopping around could cost you more than $59,000 in interest over the life of your loan. In Seattle, it could cost you more than $22,000. In other words, it pays to do your research.

Key findings

  • Comparing mortgage offers can yield big savings for borrowers across the country. The three cities where purchase borrowers can save the most are San Francisco ($59,612), Boston ($57,093) and Albuquerque, N.M. ($52,229).
  • Boston, Greensboro, N.C. and Orlando, Fla., are the cities where mortgage shoppers see the largest spread in APRs when they shop around. The average Mortgage Rate Competition Index in these three areas is 0.93. This spread yields average savings of $47,737.
  • Even in cities where savings aren’t as high as they are in San Francisco or Boston, significant savings are still possible. For example, in Seattle where potential savings are the lowest, purchase borrowers can still save $22,578 over the life of their loan by shopping around.

What the index means for you

Let’s say a borrower is offered two loans on the LendingTree platform — one with an APR of 4% and another with an APR of 3.5% — the spread would be 0.5%, or 50 basis points. The wider the index, the more a potential buyer can save by shopping around with multiple lenders.

For this report, we used the index to analyze the difference in rates and potential savings for mortgage shoppers in the 50 largest cities in the United States. By using LendingTree to shop around for a mortgage, a buyer could potentially save an average of more than $37,500 over the life of their loan.

Cities where purchase borrowers could save the most in lifetime interest payments

No. 1: San Francisco

Lifetime interest savings: $59,612
Median home loan amount: $416,250
Monthly payment savings: $167
Annual payment savings: $2,006
Mortgage Rate Competition Index: 0.72

No. 2: Boston

Lifetime interest savings: $57,093
Median home loan amount: $296,250
Monthly payment savings: $160
Annual payment savings: $1,921
Mortgage Rate Competition Index: 0.97

No. 3: Albuquerque, N.M.

Lifetime interest savings: $52,229
Median home loan amount: $367,500
Monthly payment savings: $146
Annual payment savings: $1,758
Mortgage Rate Competition Index: 0.72

Cities where purchase borrowers see the biggest spread in mortgage rates

No. 1: Boston

Mortgage Rate Competition Index: 0.97
Median home loan amount: $296,250
Monthly payment savings: $160
Annual payment savings: $1,921
Lifetime interest savings: $57,093

No. 2: Greensboro, N.C.

Mortgage Rate Competition Index: 0.96
Median home loan amount: $241,250
Monthly payment savings: $128
Annual payment savings: $1,541
Lifetime interest savings: $45,776

No. 3: Orlando, Fla.

Mortgage Rate Competition Index: 0.87
Median home loan amount: $233,750
Monthly payment savings: $113
Annual payment savings: $1,358
Lifetime interest savings: $40,341

What is the Mortgage Rate Competition Index?

The LendingTree Mortgage Rate Competition Index is a proprietary measure of the dispersion in mortgage pricing. It measures the APR spread of the best offers available on LendingTree relative to the least competitive (i.e., the highest) rates on 30-year, fixed-rate mortgages. 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 LendingTree white paper.

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 provide. 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:

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, fixed-rate loans and then find the median of the individual spread, which is our index value. This is done separately for the population of purchase and refinance loan requests.

For the purposes of this study, we used data on the combined statistical area (CSA) or metropolitan statistical area (MSA) levels to approximate data on a city level.

LendingTree research analyst Jacob Channel contributed to this report.

 

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