There has always been a gap between the lowest mortgage rate that the best lender will offer borrowers and the highest one offered by the worst lender. However, "That gap has grown significantly over the past couple of years," according to Axios, a news outlet.
This isn't a matter of one borrower qualifying for a better mortgage rate than another. Someone with stellar credit, few existing debts, a big down payment and a stable income will almost always get a lower rate than another in a less enviable position.
No, this is about structural differences that mean some lenders will routinely charge higher rates than borrowers deserve. And a new study by Tomo Mortgage reckons, "American homebuyers will overpay $11 billion in 2025. Or, to put it another way: 7 out of 10 homebuyers end up paying $4,500 more than they should — just because they picked the wrong lender."
What's going on?
Tomo blames this widening gap on "confusion capitalism." Even in their simplified form of loan estimates, mortgage quotes remain complicated documents.
Some have low rates but high fees for numerous services. Others offer the opposite. Then there are discount points; by paying a sum upfront, you can buy a lower mortgage rate. It's a recipe for confusion.
"By using mortgage jargon, irrational math, and other sales tactics, [greedy lenders are] able to convince people to pay more without realizing it," says Tomo. In a recent survey, only 30% of homebuyer respondents could explain what an origination fee is, for example.
Why now?
Tomo talks about "some macroeconomic reasons for the added squeeze," but goes no further. We suspect that some of the explanation is down to higher-than-expected mortgage rates.
For much of last year, industry bodies were forecasting a slow reduction in rates. And lenders probably geared up for some extra demand. However, mortgage rates have remained stubbornly high, leaving some mortgage companies struggling to cover overheads and make a reasonable profit.
What borrowers can do
