When you’re buying a home or refinancing your current mortgage, your interest rate is one of the most important factors to pay attention to. And if you negotiate a lower interest rate, you can save thousands of dollars over the course of your loan.
If you’ve shopped for loans before, you might have the mindset that you must accept the rate the bank offers you. But the good news is that there are plenty of ways to improve that rate. In this article, we share five of the best ways to negotiate for a lower mortgage rate.
5 ways to negotiate a better mortgage rate
The first interest rate quote you get won’t always be the lowest. But whether you’re buying a new home or refinancing your current mortgage, there are a few ways you can negotiate for a better rate.
1. Compare rates from other lenders
Mortgage rates can vary quite a bit from one lender to the next. Even just looking at the best mortgage rates on the market, you’ll notice that they can vary by more than a full percent. And not only is each lender’s best rate different, but the rate you’ll get from each lender can depend on many factors. Each lender will consider your credit score and debt-to-income ratio, among other things. But some may offer you vastly different rates.
The good news is that you can easily get rates from multiple lenders. Many lenders allow you to get pre-qualified, which doesn’t require a hard inquiry.
[ Read: Best Investment Property Mortgage Rates ]
2. Ask lenders to match a lower rate offer
Don’t be afraid to negotiate with lenders after they’ve given you a quote. Once you request quotes from multiple lenders, you can use those pre-qualification letters to try to bring them down. Reach out to a loan officer from the lenders you’re considering and ask them to meet the lowest rate you’ve been quoted. Negotiate until you can’t get lenders to bring down their rates anymore. While it can feel weird to negotiate, remember that your business is just as important to them as theirs is to you. If you’re a creditworthy borrower, they’ll be willing to work with you.
3. Use discount points
Mortgage points allow you to lower your mortgage interest rate in exchange for an upfront payment. In general, you’ll pay 1% of the mortgage amount for each 0.25% reduction in interest rate. Not all mortgage lenders offer points, but those that do may allow you to purchase several. Do the math and see how much each 0.25% interest will cost you over the span of a 30-year mortgage, and you’ll see why this is such an attractive option.
4. Strengthen mortgage application
The best interest rates are typically reserved for the most creditworthy borrowers. As a result, one of the best ways to get a lower rate is to improve your financial situation. You may have to put off buying a house for a while, but it could definitely be worth it. A few ways you can improve your mortgage application include:
- Raising your credit score. Your credit score is a huge factor in determining your interest rate. Only those with excellent credit can get the best interest rates. You can increase your rate by paying your bills on time and reducing your credit utilization.
- Saving a larger down payment. When you provide a large down payment, lenders see you as a lower risk before you have more skin in the game in the form of equity. As a result, they’re willing to offer a lower rate. By taking a bit more time to save a larger down payment, you could save yourself a lot of money in the long run.
- Paying off debt. Your debt-to-income ratio is a huge factor lenders look at when deciding whether to give you a loan. The higher yours is, the higher the interest rate a lender is likely to offer you. By paying off more of your debt, you can decrease your debt-to-income ratio, and therefore lower your interest rate.
[ Read: How to Raise Your Credit Score ]
5. Consider locking your rate
Mortgage rates have been lower than ever over the past year because of Fed action in response to the coronavirus pandemic. As a result, it’s been a great time to buy a house, and many buyers have been able to lock in low interest rates.
If you’re getting ready to buy a home but aren’t quite there yet, you might worry you’ll miss out on the low rates. The good news is that if you’re planning to buy soon, you can lock in a rate now that could last for up to two months.
A rate lock is when mortgage lenders guarantee a certain mortgage rate if you close on a home within a certain number of days. Locking in a rate really only works for those who are shopping for a home now since they typically last for anywhere from 30-60 days.
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Too long, didn’t read?
While it might seem minor, your mortgage interest will be a huge factor in determining how much you spend on your home over the life of your loan. A lower interest rate can help you save 10s of thousands of dollars, so negotiating a lower rate is always worth it. There are plenty of ways to get a lower mortgage rate, including shopping around with different lenders and increasing your creditworthiness.
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