$26,166 in Savings Possible for Homebuyers Shopping Around for a Mortgage
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LendingTree shows borrowers how to fight rising rates by getting competing offers from lenders.
- Homebuyers could have seen median lifetime savings of $26,166 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 17, 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.
- Across all purchase loan applications on LendingTree for the week ending July 15, 2018, the index was 0.56, down 0.02 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 $26,166 in savings on a $300,000 loan (see Mortgage Savings Tracker graphic below).
- The index was wider than the purchase market in the refinance market at 0.68, up 0.01 from the previous week.
- Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $31,532 by shopping for the lowest rate.
- 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
Mortgage Rate Competition Index
Consumer spending drove Q2 growth
Retail sales data released Monday morning was very robust. With consumer spending representing two-thirds of the U.S. economy, it bodes well for second quarter GDP data to be released next week. A reading over 4% is quite likely, which would be the strongest growth since 2014. The sustainability of this rate of growth is in question though, as the quarter saw boosts from the tax cut and fiscal stimulus, which are not expected to be as impactful going forward. The second half of the year could also see impacts of the trade war intensify and weigh on growth.
Other data this week will focus on the homebuilding market. Housing starts should continue an upward trend of about 20% over a year ago. However, the rate of new construction is well below a pace that would ease the inventory challenge in the combined homebuying market for both new and existing homes.
Low inventories pushing prices higher is the theme of this year’s housing market. Supply problems are particularly acute for lower priced homes. Sales for homes under $100,000 were down 18% Y/Y in May and those between $100,000 and $250,000 were down 7% Y/Y. Rising rates have yet to temper 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:
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.