On August 12th Freddie Mac announced the average 30-year fixed-rate mortgage was just 4.44% – the lowest rate since Freddie began keeping records in 1970. So if you are like me, you might assume that you would be able to lock in a rate around 4.5% at most banks, large or small, and not worry too much about rate shopping.
Well, think again my friends. On average the three biggest banks – Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. – offer rates of 4.66% on 30-year fixed mortgages while some of the smaller regional banks are offering rates .25% to .5 less.
So, why is there such a difference? The largest factor is because of the consolidation during and after the financial crisis. The big three banks accounted for over half of new mortgage originations during the first half of the year and frankly they don’t have to compete on pricing the same way smaller banks do.
Small banks have pricing advantages as well. They are able to price loans more aggressively because of their agile structure and can cut overhead when needed. Smaller lenders also tend to pay loan originators on commission where the LO lives or dies on the volume of the loans where as salaried LO’s at the larger banks are not as concerned about volume. In fact, it’s often times cheaper for big banks to buy loans originated by smaller banks than to reduce rates to be competitive.
Conclusion: Don’t overlook the smaller lenders when shopping for a mortgage, you might just find the lowest rate AND the best customer service!