Shopping around for a mortgage could prove beneficial for borrowers looking to save money, particularly in a high interest rate environment, according to a new report from LendingTree.
The potential savings breaks down to roughly $212 a month, or $2,547 per year on average, according to the report. But in states with higher home prices — particularly California, New Jersey and Hawaii — shopping around could provide even more substantial savings of $131,190, $127,125 and $115,947, respectively, over the lifetime of loans originated in these locations.
While savings would be much lower in states with lower home values, shopping around could still prove beneficial for borrowers. In South Dakota, for example, LendingTree estimated that borrowers could save as much as $35,000 over the lifetime of their loan if they shop around for a good deal.
Mortgage rate offerings can also vary significantly by location, according to the report.
“Nationwide, the spread between the average highest and lowest APRs offered to borrowers who shopped around for a mortgage and received offers from two or more lenders is 92 basis points,” the report explained. “This spread varies from as high as 146 basis points in Minnesota to as low as 58 in Alaska.”
This boils down to regional differences among lender criteria, according to Jacob Channel, LendingTree senior economist and author of the report.
“Different lenders have different standards and criteria that they look at when deciding who to lend to,” Channel wrote. “It’s for that reason that different lenders can offer such drastically different rates to the exact same people. And, by extension, it’s also why shopping around for a lender can help homebuyers save so much money.”
Borrowers in Minnesota, Nebraska and Wisconsin saw the largest spreads between the highest and lowest APRs, the report found.
“Put another way, APRs offered by different lenders to the same borrowers in these states frequently differ by more than a percentage point,” the report stated.
LendingTree compiled this report based on data analysis from 34,009 users of its online loan marketplace. The dataset was limited to users “who received two or more offers for 30-year, fixed-rate mortgages from lenders from Jan. 1 through May 6, 2024,” according to the methodology.
Researchers then constructed hypothetical monthly payments a borrower would make “if they received a loan equal to the average requested mortgage amount made by LendingTree users in their state,” the report explained. “One payment assumed their loan came with the highest average APR calculated for their state, while the other assumed their loan came with the lowest average APR calculated for their state.”
Another recent study from LendingTree found that more than half of all U.S. homebuyers (54%) who took out a mortgage for their most recent home purchase received only one loan offer. This indicates that a sizable portion of borrowers do not shop around for the best mortgage deal.