Mortgage Borrowers Could Save Almost 10% of the Loan Amount in Interest by Shopping Around
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LendingTree shows borrowers how to fight rising rates as the spring selling market heats up.
- Homebuyers could have seen median lifetime savings of $29,321 in interest on a $300,000 loan by comparison shopping for the best mortgage rates last week, up 47% from a year ago.
- This week’s Mortgage Rate Competition Index was 0.63 for purchase mortgages, up 0.20 from a year ago, and unchanged from last week.
- The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.
May 15, 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.
- Across all purchase loan applications on LendingTree for the week ending May 13, 2018, the index was 0.63, unchanged from the previous week.
- How big of a deal is it to get a mortgage rate that’s 0.63% lower than the competition? Over 30 years, that could translate to $29,321 in savings on a $300,000 loan —nearly 10% of the total loan amount (see Mortgage Savings Tracker graphic below).
- The index was wider than the purchase market in the refinance market at 0.67, unchanged from the prior week.
- Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $31,339 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 $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
Mortgage Rate Competition Index
Inflation could push rates higher this week
Our Mortgage Rate Competition indexes for both refinance and purchase have shown little movement the past few weeks, mirroring the stability in mortgage interest rates. Last week’s Consumer Price Index inflation was marginally below expectations and tempered expectations of accelerating inflation. Expectations for inflation are also incorporated in the 10-year Treasury rate, which influences mortgage rates more than the fed funds rate. The inflation report suggested that the mortgage rates should consolidate current levels, providing some relief to potential homebuyers who continue to face rising prices amid tight supply.
This week, we will get new information on the supply picture with the release of the housing starts report on Wednesday. A strong number would be welcomed, but we are not in a circumstance where we can build new homes fast enough to alleviate the supply constraints in the existing homes market. Supply problems will remain 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, 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.
Download The LendingTree Mortgage Rate Competition Index White Paper