Home LoansMortgageMortgage Rates

Mortgage Rate Competition Index Widens

LendingTree adds groundbreaking transparency to the mortgage shopping market

  • Homebuyers could have seen median savings of $27,980 by comparison shopping for the best mortgage rates last week, up 4.5% from the prior week.
  • This week’s Mortgage Rate Competition Index was 0.60 for purchase mortgages, up 0.15 from a year ago, and up 0.02 from last week. The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.

March 20, 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 March 18, 2018, the index was 0.60, up 0.02 from the previous week.
  • How big of a deal is it to nab a mortgage rate that’s 0.60% lower than the competition? Over 30 years, that could translate to $27,980 in savings on a $300,000 loan (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider in the refinance market at 0.64, up from 0.59 the prior week.
  • Borrowers shopping for refi loans could have saved $29,921 by shopping for the lowest rate.

Other findings

  • Average savings in 2018 are outpacing 2017 savings, which were $21,000 in purchase and $26,000 in refinancing.
  • 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

 

Mortgage Rate Competition Index

 

Keeping an eye toward rising rates

Lenders continue to point out the competitive challenges they are facing. Last week, Fannie Mae reported their Q1 2018 Mortgage Lender Sentiment Survey in which 78% of lenders cited “competition from other lenders” as a key business challenge, the highest since the survey began in 2014. More competition among lenders means there are more opportunities for borrowers to save by shopping around. By showing the spread between high and low rates, LendingTree aims to help borrowers stay informed of the potential savings in real time.

The Federal Reserve meets this week and is expected to raise the benchmark federal funds rate by 25 bps. While the relationship of the fed funds to mortgage rates has been weak recently, commentary about the economy could move long-term rates like the 10-year Treasury, which more closely correlates to the mortgage rates. The Fed is not expected to make any changes to its balance sheet normalization plans, which include reducing its holdings of mortgage-backed securities, another source of upward pressure on mortgage rates.

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 credit pull, 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-yr 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

 

Tendayi Kapfidze is Chief Economist at LendingTree. He leads the company’s analysis of the U.S. economy with a focus on housing and mortgage market trends. Read more about Tendayi.

If you’re interested in receiving this weekly report and other relevant mortgage reports, please email: [email protected]

 

 

Today's Mortgage Rates

  • 2.456%
  • 2.416%
  • 2.955%
Calculate Payment
Advertising Disclosures Terms & Conditions apply. NMLS#1136