Soliciting home loan offers from several lenders, then picking the best one before purchasing a house, can save a buyer tens of thousands of dollars, according to a new analysis.
The average home loan borrower could save $80,024 — $2,667 a year — over the life of a 30-year fixed-rate mortgage, according to online lending marketplace LendingTree. Borrowers can save up to six figures in mortgage payments if they purchase a property in states where median home prices have soared — including California, Hawaii, New Jersey, Massachusetts and Washington — the analysis, published Tuesday, suggested.
“That’s money that can instead be used toward other financial goals,” Matt Schulz, chief consumer finance analyst for the site, said in a statement. “It can turbocharge your savings for an emergency fund or your investing for retirement. It can make it far easier to pay down lingering high-interest debt.
The analysis found that buyers who shop around for a mortgage in California, Washington, Hawaii and New Jersey can save $118,393, $109,012, $105,473 and $104,638, respectively. Buyers save the least when purchasing homes in the South — keeping only $44,586 in Louisiana, $46,519 in West Virginia, $49,846 in Mississippi and $50,098 in Kentucky.
Mortgage rates inch closer to 7%
The study lands at a time when mortgage rates are inching upward and housing market watchers are predicting even higher rates.
The average interest rate for a 30-year, fixed-rate home loan climbed to 6.89% last Thursday from 6.86% the prior week, mortgage giant Freddie Mac said. A year ago, the average was 7.03%. The average on a 15-year mortgage rose to 6.03%, up from 6.01% one week earlier, but down from 6.36% a year ago, Freddie Mac said.
The study based its figures on a homebuyer taking out a $330,000 loan with an interest rate between 6.8% and 7.8%, generating a monthly payment between $2,159 and $2,381. LendingTree researchers said they ran the same analysis last year and found that homebuyers could save an average of $76,410.
The results dovetail with a May survey by personal finance website Bankrate, which polled 1,363 recent homebuyers. Ten percent of the respondents said they regretted not getting the best mortgage rate they could, while another 16% said they regretted the purchase because their mortgage payment is too high.
For most buyers, securing a home loan is one of the first steps toward buying a property — a task completed before placing an offer. Buyer agents often advise their clients to get mortgage offers from a range of lenders — large and small banks, credit unions, and mortgage companies.
The U.S. Department of Housing and Urban Development also urges buyers to either shop around for home loans or hire a mortgage broker — someone who can contact lenders and gather all the best offers on a buyer's behalf.
"Failing to shop around for the best mortgage rates means you’re just making things even harder on yourself and your family for the foreseeable future," Schulz said. "It is a huge missed opportunity.”