$26,881 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 $26,881 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.
June 19, 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 June 17, 2018, the index was 0.58, down 0.07 from the previous week.
- How big of a deal is it to get a mortgage rate that’s 0.58% lower than the competition? Over 30 years, that could translate to $26,881 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 0.67, down 0.10 from the prior week.
- Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $31,098 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
Big week for housing data
The Fed met expectations by raising its benchmark Fed funds rate last week and signaling more hikes to come. Treasuries seem to have consolidated below 3% level and would need a catalyst to provoke a move. The week does not contain major data that is known to move Treasury markets. However, the impact of tariff disputes could dampen the rise in long-term rates.
Data this week will reveal the latest trends in the housing market. Already the homebuilder confidence index included a comment that tariffs have added $9,000 to the cost of new homes. CPI data last week also revealed a spike in prices of washing machines, a product targeted in an earlier round of tariffs implemented on Feb. 7. An escalation in the tariff war over the weekend between the U.S. and China will increase the costs of more household items and could put a damper on housing related spending.
Other data this week includes housing starts, existing home sales and home prices. Reflecting activity in April and May it will give a read on the strength of the spring housing market. We expect data to show some loss of momentum, though the housing market remains robust.
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 13% Y/Y in April and those between $100,000 and $250,000 were down 1% 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.