Shopping around for a mortgage could save Philly-area buyers thousands of dollars per year

It’s been more than 20 years since mortgage interest rates were this high.

The average rate for the popular 30-year, fixed-rate loan was 7.19% as of Sept. 21, according to the government-backed mortgage buyer Freddie Mac. That’s down slightly from 7.23% in August, but up from 6.02% the same week in September last year.

Elevated mortgage rates, along with a low supply of homes for sale, are keeping some people who want to buy homes on the sidelines.

But many factors determine what kind of interest rate buyers will get, including their credit, income, savings, debt, and even their profession. Rates also vary by mortgage lender. If buyers apply with more than one mortgage lender for their loan and compare offers, they could save thousands of dollars.

» READ MORE: Tips for home buyers worried about higher mortgage rates

The typical home buyer in the Philadelphia area could save about $2,600 a year and $78,000 over the life of a 30-year loan if they shop around for a mortgage, according to a report by LendingTree, the online loan marketplace.

“This isn’t a miracle. It’s not necessarily going to make buying a house way cheaper,” said Jacob Channel, LendingTree’s senior economist and author of the report. “But for a lot of people, it can certainly help. And you don’t know until you try.”

Home buyers can share financial data with an online loan marketplace that compares mortgage offerings and connects borrowers to lenders, or they can call around to lenders and ask for their best offers. Buyers should double-check that the mortgages they are comparing are actually comparable, with the same length of time to pay back the loan and the same loan type (for example, fixed-rate vs. adjustable-rate).

» READ MORE: Philly homeowners are not selling because of higher interest rates

Mortgage rates offered to a borrower can vary by lender because lenders can have different mortgage requirements and risk standards. For example, some may specialize in working with first-time home buyers or buyers with lower credit scores.

The potential savings that LendingTree calculated for the Philadelphia metropolitan area were based on an average mortgage amount of $315,806. LendingTree studied more than 215,000 users who received three or more offers for 30-year, fixed-rate mortgages in the first seven months of the year. It looked at the difference between the average highest and average lowest rates offered to users.

In the Philadelphia region, the difference was about 1 percentage point. The monthly payment with the lowest average interest rate was $2,048, compared to the $2,265 monthly payment with the highest average rate.

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The region ranked 29th out of the 50 largest metro areas for the amount of savings from shopping around for a mortgage. Across these 50 metros, borrowers could save an average of $84,301 over the life of a 30-year loan, or $2,810 per year.

“This isn’t necessarily a magic bullet,” Channel said. “Shopping around can help you find a lender, can help you find a lower rate. But at the end of the day, the fundamentals of your financials still matter.”

Buyers should pay down as much debt, save as much money, and raise their credit score as much as they can before starting their home search to get the best mortgage terms.

» READ MORE: Home buyers saw mortgage rates swing up and down more than at any time since 1987 (From 2022)

Getting more mortgage offers usually gives borrowers a better chance of saving, but people who receive more offers are those with high credit scores that let them access lower interest rates. They also are more likely to take out bigger mortgages.

Borrowers who shop around for loans in expensive areas of California can save the most, according to LendingTree’s analysis. They could save more than $150,000 over the life of a 30-year loan in San Jose and San Francisco and more than $130,000 in Los Angeles and San Diego.

The Buffalo, N.Y., metro area ranked last for savings in the list of the 50 largest metros, but borrowers there could still save $1,383 per year by shopping around for a mortgage.