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Shopping Around Could Allow Mortgage Borrowers to Save Almost 10% of the Loan Amount in Interest

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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 $29,273 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 down 0.02 from last week.
  • The Index measures the median spread between the highest and lowest APR available on the LendingTree platform.

May 8, 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 6, 2018, the index was 0.63, down 0.02 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 $29,273 in savings on a $300,000 loan —nearly 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 0.67, down 0.01 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.

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

Last week’s Federal Reserve statement made note of the fact that the 2% inflation target is symmetric. This suggests some willingness by the Fed to let inflation run a little hot. While this eases concerns about an acceleration in the Fed rate hike path for the benchmark Fed funds rate, it actually suggests mortgage rates could run hotter.

Mortgage rates closely track the 10-year Treasury of which inflation is a significant component. This week, key data that will give readings on inflation pressures in the economy include the consumer price index, the producer price index and import price index. Upside surprises in these measures could support Treasury rates, which have been capped at 3% over the past two months.

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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