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Credit Scores Count in a High Rate Environment

Annual Percentage Rates (APRs) rose to their highest in the year in September, according to LendingTree's latest data on mortgage offers during that month.

The report indicated that for the average borrower, purchase APRs for conforming 30-year-fixed-rate loans was 5.09 percent, up 10 basis points from August. A 4.96 percent loan note rate was also found to be the highest of the year.

LendingTree said that September's best offers for borrowers with the best credit profiles had an average APR of 4.39 percent for conforming 30-year fixed purchase loans, up from 4.32 percent in August. Refinance loans were up five basis points to 4.40 percent during the month.

As mortgage rates rise, credit scores are going to play an increasingly important role for borrowers shopping for the best rates as indicated in the report, which found that consumers with the highest credit scores (760+) received APRs of 4.95 percent compared with 5.25 percent for consumers with credit scores between 680 and 719. "The APR spread of 30 bps between these score ranges increased one basis point from August," the report said.

Looking at the spread in absolute terms, for the average purchase loan amount of $231,175, it represents over $15,000 in additional costs for borrowers with lower credit scores over a 30-year period.

For the average borrower looking at a refinance loan, the APRs for conforming 30-year fixed loans were up 11 bps from August to 5.09 percent. The credit score bracket spread widened by one basis point, to 24 basis points. This means that for an average refinance loan of $239,623, a borrower with a low credit score would be paying $13,000 in additional costs over the life of the loan.

The monthly report contains data from actual loan terms offered to borrowers on Lending Tree's website and includes the average quoted APR by credit score along with the average down payment. The report also looks at varying mortgage rates depending upon credit scores, loan-to-value ratio, income and property type.

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. You can contact her at Radhika.Ojha@theMReport.com.

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