A lower mortgage APR can save you tens of thousands

Stacks of Ten Thousand Dollar Piles of One Hundred Dollar Bills.
Andy Dean Photography / Shutterstock

LendingTree looked at mortgage APRs or annual percentage rates, which are higher than the interest rates you're accustomed to seeing in the closely followed rate surveys. The popular survey from mortgage company Freddie Mac, for example, says 30-year mortgages this week are averaging a record-low 3.15%.

An APR takes the interest rate and rolls in closing costs, the fees known as "discount points" and other borrower charges, to give a broader picture of the annual cost of the loan.

LendingTree says its research, using data from April, shows the average APRs offered to homebuyers with the best credit scores — 760 or higher — ranged from 3.47% to as high as 4.32%. The hypothetical loans in the study were 30-year mortgages in the amount of $250,000.

Someone with stellar credit who grabbed a high rate without shopping around to find one on the low end would pay almost $44,000 in extra interest over the 30-year span of the loan, the study shows.

Going down the credit score ladder, LendingTree found that:

  • The average APRs offered to buyers with credit scores between 720 and 759 ranged from 3.46% to 4.43% — a difference of almost 1 full percentage point. The lower rate would save a borrower a little over $50,000 in lifetime interest, compared to the higher rate.
  • The average APRs offered to buyers with credit scores between 680 and 719 ranged from 3.62% to 4.61%. Getting a lower rate would mean lifetime interest savings of nearly $52,000.
  • The average APRs offered to buyers with credit scores between 640 and 679 ranged from 3.87% to 4.79%. A lower rate would mean lifetime interest savings of almost $49,000.
  • The average APRs offered to buyers with credit scores below 640 ranged from 3.69% to 4.16%. A lower rate would mean lifetime interest savings of about $24,000.

Don't know your credit score? It's easy to get a look for free.

The lesson is to shop, shop, shop around

Portrait of family couple looking attentively into screen of laptop, comparing mortgage rates
WAYHOME studio / Shutterstock

LendingTree also found big spreads on the rates on refinance loans offered to homeowners.

For example, an owner refinancing into a 20-year loan for $200,000 and having a credit score between 640 and 679 was offered average rates ranging from 3.58% to 4.69% — a spread of over 1 full percentage point.

The lower rate would save a borrower more than $28,000 over the life of the loan, according to the LendingTree study.

Lots of people incorrectly think lenders all follow some kind of rule that says a particular person should be charged a particular rate, but that's just not the case, says LendingTree senior research analyst Kali McFadden.

"Lenders do follow an underwriting schema, but they also have a variety of reasons why they might make different offers to the same borrower, and it's an absolute shame to pay so much more for something than you have to," McFadden says.

The lesson couldn't be any clearer: You've got to shop around and compare rates from several lenders — not grab the first loan you're offered. You can reduce your mortgage payment and save big over time.

"Just think of what even saving $20 a month could do for someone's retirement nest egg," says McFadden.

Take a look at today's best mortgage rates where you live:

About the Author

Doug Whiteman

Doug Whiteman

Editor-in-Chief

Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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