Lower-credit borrowers not seeing benefits of rate drop, says LendingTree chief economist

by Candyd Mendoza14 Mar 2019

The best mortgage offers in February had an average of interest rate of 4.09% for conforming 30-year, fixed-rate purchase loans, according to a new report by LendingTree. The report also analyzed how credit scores affected customers’ ability to obtain loans.

The best credit profiles are considered to be those in the 95th percentile of borrowers who got the best mortgage offers through LendingTree’s marketplace.

"Of note, since rates started falling in December, lenders are passing through those benefits to higher-credit borrowers, but not so much to lower credit borrowers," said LendingTree chief economist Tendayi Kapfidze. "…Borrowers with scores 760+ have seen a decline of 52 bps, but those with scores of 620 to 639 just 24 bps from November to February. This tightening of lending at the lower end may have implications for home sales, as the two lower buckets are about 10% of sales."

The report pointed out that rates in February slightly declined from 4.19% in January. Also, the APR on refinance loan offers went down from January’s 4.14% to 4.04% in February.

“For the average borrower, the purchase APR for conforming 30-year, fixed-rate purchase loans offered on LendingTree's platform was 4.87 percent in February, down 11 basis points from January. The loan note rate of 4.75 percent was also down 11 basis points from January. We prefer to emphasize the APR as lenders often make changes to other fees in response to changing interest rates,” LendingTree wrote in the report.

LendingTree noted that borrowers with excellent credit scores (760+) often had more savings than those with lower scores (680 to 719). Borrowers with higher credit scores received an average APR of 4.68%, versus 5.02% for consumers with lower scores.

“The APR spread of 34 basis points between these score ranges is down from 37 in January,” wrote LendingTree. “For the average purchase loan amount of $229,615, the spread represents slightly more than $17,000 in additional costs for borrowers with lower credit scores in the span of 30 years. The additional costs result from higher interest rates, larger fees or a combination of the two.”