Lew Sichelman
Even if you shopped for the lowest mortgage rate you could find, you may be paying more than necessary – simply because you didn’t know lower rates existed.
That’s the gist of a new report from Bankrate, which maintains nearly 9 out of every 10 borrowers are paying more than they should – to the tune of about $3,343 per household annually. That’s the equivalent of paying $279 a month more on average.
“For the typical borrower, that adds up to $78,186 over the life of a 30-year loan – more than the median American household’s total retirement savings,” reads the report, which is based on mortgages issued from 2022 to 2025.
“Our research suggests that for most borrowers, competitive rates exist; borrowers just never see them,” said Bankrate CEO Matt Fellowes. “When lenders compete for a borrower’s business, the savings are meaningful and immediate.”
Two Policy Changes Suggested
The report is at least a bit self-servicing: It said that, had borrowers used Bankrate’s mortgage auction, where lenders compete in real time on price alone, they would not have overpaid. But Bankrate’s isn’t the only such tool. A similar site that comes to mind is LendingTree, which connects borrowers with multiple lenders to help them compare financial products.
LendingTree continually publishes reports on how much borrowers can save by shopping – an average of $62,572 over the span of a 30-year fixed-rate mortgage, it said in its last report. But Zillow said 69 percent of all borrowers submit just one application for financing.
Neither the Bankrate nor LendingTree sites contain offers from every lender, or every lender’s products. But at least offers submitted through the Bankrate platform are binding and conditioned only on the accuracy and completeness of a borrower’s input. The winning bid must be honored by the lender.
Bids are directly comparable to the terms at which loans are actually originated. Consequently, the company said that its findings are an accurate measure of the likelihood that a borrower paid more than competitive market rates.
The Bankrate study recommends two policy changes for the industry, neither of which require new government programs or legislation. The first would require that “lenders disclose a benchmark rate for similarly qualified borrowers alongside any mortgage offer.” The second would create a “voluntary certification framework for lenders that compete in transparent multi-lender marketplaces.”
The study authors argue that people should know what the market actually offers.
“They get better outcomes when banks compete for their business, and they pay a steep price when the leverage they can apply goes unused,” the report says. “People deserve access to the information lenders would prefer to keep to themselves, and the ability to act on that information when making big financial decisions like applying for a mortgage.”
Who Pays the Most
Whether the market will respond is anyone’s guess.
According to the report, the scale of overpayments is huge: 87 percent of all borrowers likely overpay for their mortgages, “costing roughly $11 billion in excess payments annually on loans taken out in 2025 alone – and approximately $247 billion over the life of those loans.”
Somewhat surprisingly, 82 percent of low-income borrowers (those earning under $49,000) likely overpaid last year, compared to 90 percent of higher-middle-income households ($100,000-$200,000). The report adds that “higher-middle-income borrowers have the highest overpayment share of any income group, surrendering an estimated 23 percent of their total loan balance to avoidable mortgage costs over 30 years.”
Every age group overpays at roughly the same rate when buying a house.
“But in the refinance market,” reads the survey, “borrowers under 35 carry a lifetime tax equal to 14 percent of the refinanced loan balance. The refinance lifetime tax grows steadily with age, reaching 20 percent for pre-retirement borrowers (aged 55-64).”
FHA Borrowers Overpay the Least
Another shocker: The study asserts that “the most creditworthy borrowers are most likely to overpay,” and those who use conventional financing overpay more often than those who use government-backed loans. But borrowers taking loans insured by the Federal Housing Administration and guaranteed by the Veterans Administration still overpay, even though those agencies limit lenders’ pricing discretion.
Until lenders take up the call to be more transparent, borrowers are on their own. Here’s how to ferret out the lowest rates available:
First, contact at least three lenders who are active in your market. If you do not receive a return call from a lender on your list, move on to the next.
Also, make sure you compare apples to apples. Each lender should be quoting rates on the same loan program. For example, do not try to compare one lender’s 15-year mortgage with another’s 30-year product. All terms should be the same.
Yes, the mortgage rate is likely paramount in your decision, but it’s not the only consideration. You’ll also want to know each lender’s “pull-through rate,” or the percentage of loan applicants who actually make it to the closing table. A low pull-through rate indicates stricter underwriting, while a higher one means the rules are not as rigorous.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
