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Mortgage Borrowers Could Save 10% of the Loan Amount in Interest by Shopping Around

LendingTree shows borrowers how to fight rising rates as the spring selling market heats up.

  • Homebuyers could have seen median lifetime savings of $30,377 in interest on a $300,000 loan by comparison shopping for the best mortgage rates last week, up 49% from a year ago.
  • This week’s Mortgage Rate Competition Index was 0.65 for purchase mortgages, up 0.21 from a year ago, and up 0.01 from last week.
  • The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.

May 1, 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 29, 2018, the index was 0.65, up 0.01 from the previous week.
  • How big of a deal is it to get a mortgage rate that’s 0.65% lower than the competition? Over 30 years, that could translate to $30,377 in savings on a $300,000 loan, just over 10% on the loan amount (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider in the refinance market at 0.68, unchanged from the prior week.
  • Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $31,773 by shopping for the lowest rate.

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 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

LendingTree Mortgage Savings Tracker

Mortgage Rate Competition Index

LendingTree Mortgage Rate Competition Index

Slight chance of a Fed surprise this week

The Federal Reserve will meet Tuesday and Wednesday this week to set the benchmark fed funds rate. Expectations are that the rate, due to be announced on Wednesday at 2 p.m. EST, will remain in the current range of 1.50% to 1.75%.

However, we believe there is a slight chance that the Fed will surprise the market with a rate hike. Recent economic data has reaffirmed that the Fed is on the right path raising rates, with some indicators suggesting a risk that they are falling behind. In particular, the personal consumption expenditures index (PCE) measure of inflation reported on April 30 reached the Fed’s 2% target for the first time since February 2017. The Fed will also have an advance read of Friday’s job report when they meet; consensus expects a strong report with unemployment down to 4.0% from 4.1%.

Mortgage rates are at the highest levels in four years. Mortgage rates tend to follow the trend in the 10-year Treasury, which is oscillating around 3%. Rates are moving higher as the U.S. government increases its level of borrowing following the tax reform bill. Expectations of faster economic growth and higher inflation spurred by the tax reform bill are also adding to the upward pressure on rates. A surprise hike by the Fed could cause a decisive move above 3% in the 10-year Treasury, with higher mortgage rates following.

We are in the core of the spring selling season for homes. Supply problems are dampening sales of existing homes and are particularly acute for lower priced homes. Sales for homes under $100,000 were down 21% Y/Y in March and those between $100,000 and $250,000 were down 8% Y/Y. 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

 

Today's Mortgage Rates

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  • 2.53%
  • 3.033%
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