Shopping Around for a Mortgage Can Save Borrowers $63,000+ Over Lifetime of Loan
Though rising mortgage rates have made homebuying considerably more expensive than at the start of the year, shopping around for a mortgage and comparing offers from different lenders can help borrowers save a significant amount of money.
To show how much money those who shop around can save, we analyzed data from more than 50,000 LendingTree users who received three or more offers from mortgage lenders in May 2022. We calculated how much borrowers in each of the nation’s 50 largest metros could save if they chose the lowest APR they were offered instead of the highest.
We found that shopping around for a mortgage could save borrowers across the nation’s largest metros an average of $63,151 over the lifetime of their loans.
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Key findings
- Borrowers in the nation’s 50 largest metros can save an average of $63,151 over the lifetime of their loans by shopping around for a mortgage. That breaks down to about $2,100 a year, or around $175 a month.
- San Jose, Calif., San Francisco and Los Angeles borrowers can save the most over the lifetime of their mortgages. Across these metros, borrowers can save an average of $109,185 over the lifetime of their loans. Seattle (No. 5) is the first non-California metro to appear on the list.
- Across the 50 metros, the average spread between the highest and lowest APR offered to borrowers is 82 basis points. Getting offered a 30-year loan with a rate 0.82 percentage points lower than another can help you save tens of thousands of dollars (or more) over the lifetime of your loan.
- Riverside, Calif., Raleigh, N.C., and Hartford, Conn., borrowers see the largest spreads between the average lowest and highest APR offered. In these metros, the spread is 90 basis points — 8 basis points above the 50-metro average. But despite having the biggest spreads, lifetime savings aren’t the highest here, as borrowers in these metros have substantially lower average mortgage amounts than those at the top.
10 metros where borrowers can save the most by shopping around for a mortgage
No. 1: San Jose, Calif.
- Average lowest offered APR: 4.97%
- Average highest offered APR: 5.80%
- Spread between average lowest and average highest APR: 0.83%
- Lifetime savings: $125,645
No. 2: San Francisco
- Average lowest offered APR: 5.02%
- Average highest offered APR: 5.85%
- Spread between average lowest and average highest APR: 0.83%
- Lifetime savings: $106,024
No. 3: Los Angeles
- Average lowest offered APR: 5.11%
- Average highest offered APR: 5.95%
- Spread between average lowest and average highest APR: 0.84%
- Lifetime savings: $95,886
No. 4: San Diego
- Average lowest offered APR: 5.10%
- Average highest offered APR: 5.96%
- Spread between average lowest and average highest APR: 0.86%
- Lifetime savings: $95,884
No. 5: Seattle
- Average lowest offered APR: 5.03%
- Average highest offered APR: 5.89%
- Spread between average lowest and average highest APR: 0.86%
- Lifetime savings: $92,229
No. 6: Boston
- Average lowest offered APR: 5.10%
- Average highest offered APR: 5.94%
- Spread between average lowest and average highest APR: 0.85%
- Lifetime savings: $85,405
No. 7: Washington, D.C.
- Average lowest offered APR: 5.11%
- Average highest offered APR: 5.96%
- Spread between average lowest and average highest APR: 0.85%
- Lifetime savings: $79,567
No. 8: New York
- Average lowest offered APR: 5.13%
- Average highest offered APR: 6.01%
- Spread between average lowest and average highest APR: 0.88%
- Lifetime savings: $78,492
No. 9: Denver
- Average lowest offered APR: 5.09%
- Average highest offered APR: 5.97%
- Spread between average lowest and average highest APR: 0.88%
- Lifetime savings: $77,077
No. 10: Portland, Ore.
- Average lowest offered APR: 5.03%
- Average highest offered APR: 5.91%
- Spread between average lowest and average highest APR: 0.88%
- Lifetime savings: $76,887
Why shopping around can result in significant savings
But why can lenders offer such different rates to the same people? Mortgage lenders tend to look at factors like annual incomes and credit scores before signing off on a loan.
Lenders look at these factors because they’re trying to decide how risky it would be to work with a borrower. The riskier a borrower appears, the more financial incentive the lender will need to consider doing business and — as a result — the more money in interest they’ll be likely to charge.
But just because lenders tend to look at the same general criteria when calculating risk doesn’t mean they necessarily calculate risk the same way. Nor does it mean they all have the same mortgage requirements that a borrower will need to meet before getting approved. Because of this, some lenders may feel more or less inclined to work with a potential borrower because of factors outside of that person’s control. For this reason, different lenders might offer notably different rates to the same person.
3 tips for getting a lower rate on your mortgage
Besides shopping around for a lender, here are three more tips that can help borrowers get a lower rate on their mortgage:
- Boost your credit score. Your credit score can make a big difference in what rate a lender offers you, so you’ll want to do everything to improve your score before applying for a mortgage. While you don’t need to have perfect credit before applying, a higher score can help you save tens of thousands of dollars over the lifetime of your loan.
- Think about buying mortgage points. When you get approved for a loan, some lenders may give you the option to buy mortgage points, also known as discount points. Essentially, buying these points allows you to pre-pay interest on your loan and access a lower rate. If you have some extra cash and plan to stay in your home for a while, mortgage points can be a great option to consider.
- Consider a shorter loan term. Though short-termer loans will typically have higher monthly payments, they tend to come with considerably lower rates than longer-term loans. For those who can afford them, getting a shorter-term loan — like a 15-year mortgage — can help save a significant amount of money in interest over their loan’s lifetime.
Methodology
We analyzed data from 50,786 users of our LendingTree online shopping platform who received three or more offers for 30-year, fixed-rate mortgages from lenders from May 1 through May 31, 2022.
Specifically, we looked at the lowest and highest APRs offered to individual users in each of the nation’s 50 largest metropolitan statistical areas. With that data, we calculated the average lowest and the average highest APR offered to users who received three or more offers (see below for examples).
With these APRs, we calculated the monthly payment for a borrower if they received the average mortgage amount with the lowest average APR and with the highest average APR. The difference between these two payments is the borrower’s potential monthly savings. We multiplied these monthly savings by 12 and 360 to find the annual and lifetime savings.
It’s important to reiterate that we didn’t compare the single lowest and single highest APRs offered to users in a given area when calculating the potential monthly payments. Instead, we compared an average of the lowest and average of the highest APRs offered to individual users.
For example, consider a metro with three users who each received three offers from lenders on the LendingTree platform. The following table breaks down what they were offered:
| User | Offered APR from Lender No. 1 | Offered APR from Lender No. 2 | Offered APR from Lender No. 3 |
|---|---|---|---|
| User 1 | 5.22% | 4.99% | 5.33% |
| User 2 | 5.44% | 5.90% | 6.23% |
| User 3 | 4.95% | 5.10% | 4.97% |
For this study, LendingTree wouldn’t calculate the difference in mortgage payments for a loan with a rate of 4.95% (the lowest rate offered) and a rate of 6.23% (the highest). Instead, we would calculate the difference based on an average of the lowest rates offered to each individual user (4.99%, 5.44% and 4.95%) and the average of the highest rates offered to each individual user (5.33%, 6.23% and 5.10%). In this case, those averages would be 5.13% and 5.55%.