LendingTree Study: Cities Where Mortgage Refinance Borrowers Saved the Most by Shopping Around in Q4 2020
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Since the start of the COVID-19 pandemic in 2020, mortgage rates have remained near record lows. This trend has created an opportunity for homeowners to refinance their mortgages and potentially save a significant amount of money.
To help consumers understand how much they might save, LendingTree created its Mortgage Rate Competition Index. It measures the basis-point spread between high and low annual percentage rates, or APRs, offered to users on the LendingTree platform through the fourth quarter of 2020. APR measures your total cost of borrowing, including the interest rate, points, lender fees and mortgage insurance.
On average, LendingTree found that in 50 of the nation’s largest cities refinancing could save homeowners an average of nearly $43,000 over the life of their loan. That could translate to over $36,000 in Hartford, Conn. or more than $52,000 in San Diego.
- Comparing refinance offers can yield big savings for borrowers in some of the nation’s largest cities. Refinance borrowers can save the most in San Diego ($52,174), San Francisco ($51,008) and Denver ($49,969).
- Harrisburg, Pa., Las Vegas and Indianapolis are the cities where refinance borrowers see the largest spread in APRs when they shop around. The average index in these three areas is 1.09. This spread yields average lifetime interest savings of $44,356.
- Even in cities where savings aren’t as robust as they are in San Diego or San Francisco, significant savings are still possible. For example, in Hartford, Conn., where potential savings are the lowest, refinance borrowers can still pocket $36,111 over the life of their loan by shopping around.
- Cutting back the total interest paid over a loan’s lifetime can translate into meaningful savings on a monthly and annual basis. For example, refinance borrowers across the country can save an average of about $120 a month, or $1,440 each year.
What the index means for you
Let’s say a borrower is offered two loans on the LendingTree platform — one with an APR of 4% and another with an APR of 3.5%. This represents a spread of 0.5%, or 50 basis points. The wider the index, the more a potential buyer might save by shopping around with multiple lenders.
For this report, we used the index to analyze the difference in APRs and potential savings for mortgage refinance borrowers in 50 of the nation’s largest cities. By using LendingTree to shop around before refinancing, a borrower could potentially save an average of more than $44,000 over the life of their loan.
What is the Mortgage Rate Competition Index?
The LendingTree Mortgage Rate Competition Index is a proprietary measure of the distribution in mortgage pricing. It measures the APR spread of the best offers available on LendingTree relative to the least competitive (the highest) APRs on 30-year, fixed-rate mortgages. Our research shows that mortgage rate competition varies with the financial and operational measures of activity in the mortgage market. More details on the index are available in a LendingTree white paper.
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, such as the property type and location. Using our proprietary algorithm, LendingTree matches borrowers with lenders based on the criteria they provide. Interested lenders return an interest rate and lender 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, fixed-rate loans and then find the median of the individual spread, which is our index value. This is done separately for the population of purchase and refinance loan requests.
For the purposes of this study, we used data on the combined statistical area (CSA) or metropolitan statistical area (MSA) levels to approximate data on a city level.
LendingTree research analyst Jacob Channel contributed to this report.