$26,595 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 $26,595 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 3, 2018 — Charlotte, N.C.
We calculate the Mortgage Rate Competition Index weekly 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 1, 2018, the index was 0.57, unchanged from the previous week.
- How big of a deal is it to get a mortgage rate that’s 0.57% lower than the competition? Over 30 years, that could translate to $26,595 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 0.65, unchanged from the previous week.
- Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $30,185 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
Jobs and tariffs to signal higher housing costs
The monthly jobs report comes out this week, one of the premier economic data releases. The report is expected to show continued strength in the labor market, one of the key rationales for the Fed’s hiking cycle. The Fed itself will shed further light on its thinking with the release of minutes from their last meeting during which they raised the federal funds rate by 25 bps and increased expectations for further hikes.
Trade and tariffs will also be highlighted as new data will reveal the U.S.’s international trade position for May on Friday. That same day, new tariffs will be implemented for a host of trading partners including China and Canada, who will in turn impose reciprocal tariffs. The trade war is well and truly underway. Earlier tariffs are reflected in the cost of new home construction in items such as lumber and washing machines. Combined with rising labor costs from the tightness of the labor market, tariffs are putting in jeopardy some of the positives we had anticipated in the homebuilding market for 2018. We had previously expected the tax cuts to improve builder margins by 10%-15%, which we anticipated may have led builders to consider increasing activity at the lower end of the market where inventory challenges are particularly acute. The tariffs may negate this benefit.
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.