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Mortgage Costs vs. Credit Scores

Borrower credit profiles continued to define their cost of getting a mortgage loan in April according to the LendingTree [1] Monthly Mortgage Report released on Thursday. The report, which contains data from actual loan terms offered to borrowers by lenders includes average quoted Annual Percentage Rate (APR) by credit scores, together with average down payment and other metrics.

According to the report [2], the APR for average borrowers saw an uptick in April, rising seven basis points to 4.92 percent for conforming 30-year fixed-rate loans. The month’s best offers for borrowers with excellent profiles had an average APR of 4.26 percent, a slight rise from 4.25 percent in March. However, refinance loan offers were down one basis point to 4.23 percent.

For the average borrower, the report indicated, the loan note rate of 4.81 percent hit the highest mark since March 2016 and increased six basis points on a month-over-month basis.

However, credit scores determined the extent of additional costs paid by borrowers while getting a mortgage.

“Mortgage rates vary depending upon parameters including a borrower’s credit score, loan-to-value ratio, income, and property type,” said Tendayi Kapfidze, Chief Economist, LendingTree. “We prefer to emphasize the APR as lenders often make changes to other fees in response to changing interest rates.”

The report found that consumers with the highest credit scores (760 and more) saw offered APRs of 4.78 percent in April, versus 5.07 percent for consumers with scores of 680-719. “The APR spread of 29 basis points between these score ranges was up 2 basis points from March and the widest since this data series began in March 2016,” Kapfidze said.

The spread represents almost $15,000 in additional costs for borrowers with lower credit scores over 30 years for the average purchase loan amount of $234,437 the report found, due to higher interest rates, larger fees, or a combination of both.

For refinance loans also, the credit score bracket spread remained at 24 basis points amounting to nearly $13,000 in extra costs over the life of the loan for lower credit score borrowers with an average refinance loan of $239,199.