20 years ago, LendingTree revolutionized the way consumers get a mortgage. In the past, consumers had to pitch banks to get a mortgage or refinance their loan. Today, thanks to LendingTree’s innovation, banks now pitch you to win their business. After all, “when banks compete, you win.”
The Founding Of LendingTree In 1996
After graduating from Bucknell University, Doug Lebda went to work for PricewaterhouseCoopers in Pittsburgh as an auditor and consultant. When he decided to purchase his first home and obtain a mortgage, he found the process of visiting multiple banks and combing through mortgage offers frustrating, time consuming, and exhausting.
Lebda realized that if the process was that difficult for someone with his financial acumen, then there must be a massive market of others with the same desire for a better way. With this idea, Doug founded CreditSource USA in 1996 with Jamey Bennett, whom he knew from Bucknell and had previous experience founding BookWire.
The new company was later rebranded as LendingTree and by 1998, LendingTree launched nationally online with its headquarters based in Charlotte, NC. They also have a large office in Burlingame, just 30 minutes south of San Francisco.
On February 15, 2000, LendingTree went through a successful IPO and is now a ~$1.2 billion market capitalization company as of 2017. LendingTree has the balance sheet, longevity, and trust to be one of the leading lending networks on the web today.
As of 2019, LendingTree now has a market capitalization of over $4 billion as they clearly demonstrated tremendous growth and value add to their customers.
Free Quotes, No Obligation
The great thing about LendingTree is that you can apply for a no obligation loan online in minutes, and within the hour, you’ll get competing banks e-mailing and calling you about their best rates.
You, the borrower doesn’t pay LendingTree a penny. It’s the banks who pay LendingTree to compete for your business. As a result, lenders are motivated to try and get you the best loan possible to win your business.
Be forewarned the celerity of the lenders can be quite surprising to those who are not used to such quick service. Their e-mails and phone calls will die down after several days once they realize you have gone with another lender, or are not interested in their offers.
I like to use LendingTree to get quotes in writing and then bring these quotes to my main bank to get them to match or beat the LendingTree rate. Using this strategy, I was able to get my bank to refinance my jumbo loan to a 2.375% interest rate from their initial 2.5% offer.
Why You Should Refinance Now
Mortgage rates are close to record lows in 2019 thanks to turmoil in China, Brexit, sliding oil prices, and a highly volatile stock market. The Fed also stated they will no longer be raising interest rates.
It behooves you to at least check what the latest rates are if you have not refinanced in the past six months. If you are a new homebuyer or want to refinance, it’s important to get as many bids as possible to get the best mortgage rate and terms as possible.
Part of the yield curve has also inverted, yielding opportunity for 5/1 ARM and 10/1 ARM mortgage borrowers especially. See the chart below of the yield curve in 2019.
A big part about growing your net worth is doing everything possible to minimize expenses. I believe everybody should at least own their primary residence to get neutral the ever rising property market. Once you own, it’s all about lowering your property taxes and getting the best mortgage rate possible.
My Take On Interest Rates
Mortgage rates have been going down for over 35+ years as you can tell by the chart. There is obviously a risk that interest rates will rise at some point in the future, but I’m in the camp that interest rates will stay low for years to come.
Just look at Japan after their real estate bubble burst in the late 1980s. Their interest rates have hovered close to zero for 30 years. Sweden, Australia, and 20+ other countries have zero or negative real interest rates at the moment as well.
I see a scenario where interest rates only inch up by about 2% maximum over the next 20 years because there’s still a lot of slack in the economy. There’s a large underemployed population and median household income has gone from $59,000 in 2005 to now only $62,000 in 2019. That’s hardly any growth.
The Federal Reserve will only raise the Fed Funds rate marginally. Even so, that doesn’t mean mortgage rates will go up because mortgage rates are more tied to the 10-year bond yield which has been declining due to all the risk in the markets.
In a continued low interest rate environment, I prefer taking out a 5/1 ARM amortizing over 30 years. Why pay a higher rate when the average length of homeownership is 7 years and interest rates are in a structural decline?
You can certainly go for a 30-year fixed loan if you want absolute peace of mind and believe interest rates will be aggressively higher in the future. But if the 5/1 ARM mortgage rate is at least 1% cheaper, then I would strongly consider an ARM.
Take the monthly interest savings and save or invest it. There’s a interest rate hike cap that’s fixed for one year after the fixed adjustment of an ARM is done. There’s also a lifetime interest rate cap that’s usually no more than 4% – 5% higher than the initial rate. You can always refinance your ARM before the fixed period is over like I’ve done many times before.
If You Currently Have An ARM
If you have less than one years remaining on your adjustable rate mortgage before it becomes variable, I highly recommend you refinance today or before the fixed rate ends because ARMs are tied to LIBOR rates once they are variable, and LIBOR rates have surged higher.
The London Interbank Offered Rate (LIBOR) is a short-term rate tied very closely with Fed Funds rate, which is the overnight interbank lending rate in the US. The Fed finally started raising the Fed Funds rate in December 2015 and will continue to do so to prevent inflation from going out of control.
The great thing when you refinance an ARM is that banks based the initial 3, 5, 7, or 10 year fixed rate based on the 10-year bond yield, which has remained relatively stable. The banks are essentially SUBSIDIZING you with a lower rate in the beginning to get your business.
Take Advantage Of Lower Rates
The goal is to save money by locking in a new low rate now before they go even higher. I’ve refinanced three different properties over the past 13 years multiple times, and my combined interest savings a month is roughly $4,000. That adds up to well over $1,000,000 in interest savings over the life of the loans!
If you can find a home that’s a good deal, you can afford the payments, and plan to stay there for 10+ years, then I would take advantage of record low interest rates and buy property.