Borrowers could save $100 per month by loan shopping

Mortgage borrowers generally aren't big shoppers, and they could be leaving three-figure sums on the table each month because of it, independent researchers found in a new study of what loans have sold for in the market.

"We found that price dispersion for mortgages is often around 50 basis points of the annual percentage rate," the study's authors, Alexei Alexandrov and Elizabeth Saunders, said in the analysis of 2021 Home Mortgage Disclosure Act data.

Looking at the median loan size and fixed rate range for a typical mortgage from that year ($300,000 and 3%-3.5%, respectively), the two researchers determined the monthly payments available would be between $1,235 and $1,347 (an $82 difference).

They then re-ran the numbers, accounting for the runup in rates over the past year. In doing so, Alexandrov and Saunders found the monthly payment range for 6.5% to 7% mortgages would be $1,896-$1,996, (a $100 difference).

If rates rose even higher, the savings available could be even greater, the study published by the Consumer Financial Protection Bureau noted. (The CFPB said that it did not endorse or necessarily share the views of the study's authors.)

While higher rates do tend to make lenders more willing to compete based on price, particularly in the wholesale channel, it's not a given that all mortgage companies will.

"Competition in the mortgage market is not always channeled into lower prices," the authors of the CFPB study noted

Reasons for this cited in the study were:

• "Lenders with less restrictive overlays … might charge higher prices, to compensate for the additional risk," they researchers said. (Overlays are additional criteria beyond those government-related entities apply to loans the back for lenders. A high percentage of mortgages in the United States are currently agency-backed.)
• Different lending business models have different costs associated with them, depending on factors like whether they have physical branches and retain servicing or not.
• When demand increases or is high like it was due the availability of historically lower rates in 2021, lenders will sometimes raise their prices with the aim of limiting volume to levels they have the capacity to process.