Homebuyers can’t stop interest rates from rising, but they do have the power to get a better rate. Buyers (especially first-time buyers) know that they need to get their credit in order to get a mortgage approved, but many don’t know that by raising their score as high as possible, they will get a lower rate that will save them tens of thousands of dollars in interest payments.
Every month, LendingTree, the leading online loan marketplace with one of the largest networks of lenders in the nation, collects and analyses mortgage data on loans from its 500 lenders.
“Our monthly report continues to illustrate the impact a credit score can have on the cost of financial products,” said Tendayi Kapfidze, LendingTree’s Chief Economist and report author. “Homebuyers’ credit scores can allow them to be more competitive in a marketplace with limited inventory and heightened competition.”
Borrowers must keep improving their scores to keep pace with rising rates
Rising mortgage rates are affecting all buyers, no matter what their credit score. As the graph below indicates, rates for all borrowers have been rising since November 2017 and are expected to continue to rise gradually as the Federal Reserve implements its plan to limit inflation. In addition, the graph illustrates that borrowers have to improve their credit significantly to keep their rate the same as it was when the Fed’s policy took effect. The very highest scores (760+) received higher APR rates in June than those with just a “good” score in November. In other words, just to stay at the same rate during these times of rising interest rates, a borrower would have to improve his score by about 100 points or so.
Purchase APR by Credit Score Range
The data also show that mid-range borrowers, those with scores between 640 and 719, can lower their interest rates more easily than borrowers with scores at the top or the bottom of the credit score range by increasing their credit scores.
In recent months, the distance between the very highest and lowest scores have been growing. In the June data, raising a credit score from “fair” (580-669) to “very good” (740-799) saves a borrower $45,283 on a 30-year fixed rate mortgage. Also, gaps are growing between “very good” scores (729-759) and “good” scores (680-719), and “good” scores and “fair” scores (649-679). Today, a borrower who can improve his score from 679 to 729 will lower his APR from 5.3 percent to 4.9 percent.
The quality of a borrower’s credit score also has an impact on the size of loans and their down payments. Loans in the lowest bracket average below $200,000 while those in the top bracket average over $250,000. More importantly, lenders will require a higher down payment from borrowers with poor credit compared to those with good credit.
The table below totals the amount of interest borrowers will pay over over the lifetime of the loan. Lifetime interest paid is calculated based on the overall average loan amount.
Source: LendingTree Offers Report, June 2018
How much is a higher score worth to you?
As we’ve noted, higher rates will require every borrower to improve their score significantly just to get the rate they could get a year ago. Rising rates are a good reason to move forward with your home buying plans once you have your credit score in order. With time and diligence, you can raise your rate high enough to reach one or two better brackets, which will reward you with a better rate.
When you have done your best to improve your credit score, don’t forget the second best way for homebuyers to get a lower rate:shopping for a lender. LendingTree’s report found that by comparing computer offers from lenders, borrowers were able to save a median of $26,690 in interest on a $300,000 loan over the lifetime of their loans.
Author:Taryn Pinnaro Phone: 561-797-8927 Dated: August 9th 2018 Views: 69 About Taryn: ...
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