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Refinance Competition Was Worth $31,000 To Borrowers Last Week As Applications Fall And Lenders Compete

Borrowers shopping for refi loans could have saved up to $30,714 by shopping for the lowest rate, up 38% from a year ago.

  • This week’s Mortgage Rate Competition Index was 0.58 for purchase mortgages, up 0.14 from a year ago, and down 0.01 from last week.
  • The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.
  • Homebuyers could have saved up to $27,120 by comparison shopping for the best mortgage rates last week, up 34% from a year ago.

April 17, 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 April 15, 2018, the index was 0.58, down 0.01 from the previous week.
  • How big of a deal is it to nab a mortgage rate that’s 0.58% lower than the competition? Over 30 years, that could translate to $27,120 in savings on a $300,000 loan (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider in the refinance market at 0.66, up from 0.65 the prior week.
  • Using the same assumptions in the previous examples, borrowers shopping for refi loans could have saved $30,714 by shopping for the lowest rate.
  • Refinance competition has heightened as the MBA reported the share of mortgage applications that are refinances was the lowest since September 2008 at 38.4%.

Other findings

  • Average savings in 2018 are outpacing 2017 savings, up to $27,000 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 increase, 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

Policymakers’ comments will be the focus this week

Mortgage rates continue to trend sideways, a pattern that has held for close to two months. Inflation data last week showed the strongest increase in a year and continued strength would eventually show up in rates. Nine different Fed presidents and governors are scheduled to speak this week and their commentary will be closely watched for their views on inflation and rates.

We are getting into the core of the spring selling season for homes. Data for mortgage applications released last week showed weakness in purchase applications, down 2.0% over the prior week and 0.5% lower than a year ago, according to the Mortgage Ban. 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, 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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