Mortgage rates hit their highest level in 22 years last month before retreating for the last three weeks. Experts say homebuyers can use this volatility to their advantage — especially as more lenders are offering competitive rates.
"Mortgage rates continue to fluctuate and there is a wide dispersion of rates, suggesting that borrowers can meaningfully benefit from shopping around for a better rate," Sam Khater, chief economist at Freddie Mac, said in a press statement.
According to Freddie Mac research, homebuyers could save an average of $1,500 over the life of the loan by getting one additional rate quote and an average of approximately $3,000 if they compare five quotes. Freddie Mac’s weekly survey focuses on rates for borrowers who put 20% down and have an excellent credit score.
“The dispersion in rates is driven by the volatility in economic and financial markets and volatility usually rises at turning points, particularly turning points into potential recessions,” Khater told Yahoo Money. “That typically leads to changes in Treasury rates, increases in credit spreads, etc., which causes the dispersion in primary mortgage rates to rise.”
Khater added:“That means in that kind of environment borrowers have to become more vigilant and active in their search for the lowest rate.”
The amount of lenders offering competitive rates doubles
As the possibility of further rate hikes looms on the horizon, price-stung homebuyers may be looking for ways to lower their rates.
The average fixed rate for a 30-year home loan dropped to 6.49% this week, pulling back from its recent peak of 7.08% last month, according to Freddie Mac. In three weeks, rates have fallen more than a half-point, as inflation appears to be cooling and the Federal Reserve signaled it may soften its aggressive interest rate hikes.
Still, rates remain 3.27 percentage points higher than at the start of this year. According to Freddie Mac’s deputy chief economist, Len Kiefer, rates have so far grown at their “quickest pace" in over 50 years.
Despite rates growth slowing in recent weeks, the dip in rates hasn't been enough attract many price-struck buyers who have been pushed to the sidelines. Purchase activity was 41% lower than the same week a year, according to the Mortgage Bankers Association survey for the week ending November 30. At the same time, the rate of canceled contracts mid-purchase has been on the rise.
“We’ve seen a significant increase in mortgage rates,” Mark Palim, vice president and deputy chief economist at Fannie Mae, told Yahoo Money. “It can take between six months to 12 months for people to adjust to these higher rates. As a result, you’ll have buyers pull back while they try to figure out what they can now afford.”
To keep buyers from straying, more and more mortgage lenders are offering competitive rates.
“We’ve seen more than a doubling of the cross-sectional dispersion of rates. That is even among borrowers with very similar profiles (credit score, loan amount, LTV, loan product), the range of rates on any given day has increased substantially,” Khater told Yahoo Money. “In this volatile interest rate environment, lenders have different pricing strategies, so a borrower could potentially save themselves money by shopping around.”
Shopping around pays off
In 2018, roughly one-third of homebuyers surveyed by Fannie Mae said they did not shop around before choosing a lender. On the other hand, two-thirds said they did comparison shop and ended up with more favorable terms and rates.
According to Robert Heck, vice president of mortgage at online marketplace Morty, shopping around can help you save – especially when comparing lenders at the local level. You can do so by comparing credit unions, banks, or nonbank companies, which have gained popularity in recent years. You can also consider consulting a mortgage broker.
Of course, shopping around will require several lenders to access your credit report. This may result in multiple hard inquiries, which could dent your score, Experian said, but if you shop for a mortgage within 30 days, all of your inquiries will be grouped into one.
“There’s a lot of pent-up demand from the last 10 or 15 years as well as more accessibility for real estate as well as mortgage options that are online, less of the sort of traditional brick-and-mortar type process,” Heck said. “It'll be interesting to see how that plays out as well through the end of the year.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.