American homeowners have been told they could save up to $52,000 over the course of a 30-year mortgage if they use the best mortgage lenders, after mortgage rates fell to another all-time low.
According to new analysis from LendingTree, the best mortgage rates on offer can be as much as 1% lower than the worst rates, giving rise to potential savings of thousands of dollars over the lifetime of a loan.
The study looked at the average differences, or spreads, between the highest and lowest annual percentage rates (APRs) offered to the same borrowers on the LendingTree platform in April. APRs were used rather than simple mortgage rates, as an APR combines both interest rates and loan origination fees to give a better indication of the actual cost of a loan over a year.
Using the benchmark of a $250,000 loan over a 30-year term, the analysis found the average APRs offered to borrowers with a credit score of between 680 - 719 ranged from a low of 3.62% to a high of 4.61%. Equating to a spread of almost one percentage point, it was further calculated that opting for the lower rate over the higher rate would save a borrower $51,725 over the lifetime of the loan. Savings in excess of $50,000 could also be made among borrowers with credit scores ranging from 720 to 759, while those with a credit score of 640 - 679 could potentially save $48,699.
| Credit Score Range | Average Lowest Offer | Average Highest Offer | Implied $ Savings on $250,000 Loan (360 Months) |
|---|---|---|---|
| Less than 640 | 3.69% | 4.16% | $24,271 |
| 640 - 679 | 3.87% | 4.79% | $48,699 |
| 680 - 719 | 3.62% | 4.61% | $51,725 |
| 720 - 759 | 3.46% | 4.43% | $50,148 |
| 760+ | 3.47% | 4.32% | $43,807 |
Savings on refinance loans
For those who already have a mortgage, the analysis also found significant differences between the highest and lowest APRs on refinance loans.
By opting for a low rate from one of the best refinance mortgage companies ahead of the highest rates that are on offer, those with a credit score of between 640 and 679 could benefit from the biggest potential saving of $28,259 (based on a lower loan amount of $200,000 and a term of 20 years). Existing borrowers with a credit rating in the range of 680 - 719 could lower their lifetime mortgage costs by $24,859 by shopping around and choosing the lowest APRs.
| Credit Score Range | Average Lowest Offer | Average Highest Offer | Implied $ Savings on $200,000 Loan (240 Months) |
|---|---|---|---|
| Less than 640 | 3.15% | 3.61% | $11,276 |
| 640 - 679 | 3.58% | 4.69% | $28,259 |
| 680 - 719 | 3.36% | 4.35% | $24,859 |
| 720 - 759 | 3.26% | 4.09% | $20,654 |
| 760+ | 3.23% | 4.03% | $19,863 |
Mortgage rates fall again
Helping make all of this possible are the record low mortgage rates that the top mortgage lenders continue to offer. According to the latest data from Freddie Mac, the 30-year fixed-rate mortgage (FRM) averaged 3.15% for the week ending May 28, down from 3.24% seven days earlier, and the lowest level recorded in the survey’s nearly 50-year history.
The 15-year fixed-rate mortgage averaged 2.62%, falling from 2.7% a week earlier, and significantly down on the average of 3.46% recorded a year ago, while 5-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.13%, down from 3.17% last week and 3.6% a year earlier.
While homebuyers have recently experienced difficulties in accessing these record low rates, Sam Khater, Freddie Mac’s Chief Economist, suggests more borrowers are now proving successful when approaching lenders.
“These unprecedented rates have certainly made an impact as purchase demand rebounded from a 35% year-over-year decline in mid-April to an 8% increase as of last week—a remarkable turnaround given the sharp contraction in economic activity,” he said. “Additionally, refinance activity remains elevated and low mortgage rates have been accompanied by a $70,000 decline in the average loan size of refinance borrowers this year. This means a broader base of borrowers are taking advantage of the record low rate environment, which will benefit the economy.”
