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Mortgage Borrowers Could Save the Most Ever 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 $30,617 in interest on a $300,000 loan by comparison shopping for the best mortgage rates last week, the most since we started tracking the data in 2013.
  • This week’s Mortgage Rate Competition Index was 0.66 for purchase mortgages, up 0.23 from a year ago, and up 0.03 from last week.
  • The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.

May 22, 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 May 13, 2018, the index was 0.66, up 0.03 from the previous week.
  • How big of a deal is it to get a mortgage rate that’s 0.66% lower than the competition? Over 30 years, that could translate to $30,617 in savings on a $300,000 loan —over 10% of the total loan amount (see Mortgage Savings Tracker graphic below).

Refinances

  • The index was wider than the purchase market in the refinance market at 0.71, up 0.04 from the prior week.
  • Using the same assumptions in the previous example, borrowers shopping for refi loans could have saved $32,930 by shopping for the lowest rate.

Other findings

  • 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

LendingTree Mortgage Savings Tracker

Mortgage Rate Competition Index

LendingTree Mortgage Rate Competition Index

Inflation could push rates higher this week

Our Mortgage Rate Competition indexes for both refinance and purchase jumped higher, mirroring the move to a seven-year high in mortgage interest rates. The increase in rates is a little surprising in that it lacked the traditional catalysts for such a significant move. The most recent inflation and wage data were moderate, and these measures have a close relationship with and influence upon nominal interest rates.

The non-inflation part of rates reflects supply and demand for government borrowing. Longer term, the government deficit will place substantial upward pressure on U.S. rates. The mitigating factor in recent years has been the even lower rates in other major global interest markets, the EU and Japan, anchoring U.S. rates. If foreign demand for U.S. debt declines, rates will move higher as supply rises with government borrowing. Another source of weakening demand is U.S. corporations selling Treasuries in the wake of recent tax reforms. Changes to the treatment of foreign earnings has led companies to reduce their cash balances, which were most commonly held in Treasuries. This selling is pushing rates up.

This week, data on both new and existing home sales will be released. We expect the narrative of low inventories pushing prices higher to hold in the existing market. New home sales should continue in an upward trend as builders work to address some of the supply shortages. 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:

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

  • 2.869%
  • 2.53%
  • 3.033%
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