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No matter if you’re a first-time home buyer or looking to save thousands on your mortgage interest rate, negotiating with lenders is essential. Interest rates aren’t set in stone and closing costs can be negotiated, too.
CNBC Select talked with two mortgage experts to find out what matters when negotiating. They offer up effective strategies for securing the best mortgage rates.
Know What You Want
Buying a home is one of the biggest financial decisions you’ll make in your life. While you may spend much time and effort focused on negotiating the price of your new home, it’s equally important to negotiate the lowest mortgage rate possible, as this will significantly reduce the overall cost of your loan. Fortunately, a variety of mortgage rates are available to borrowers, and many lenders are willing to negotiate a lower rate to gain your business.
Mortgage rates are influenced by the bond market and can vary greatly from lender to lender. As such, it’s important to comparison shop. Start by doing a simple Internet search for “mortgage rates + your city/province.” Make sure you are comparing apples to apples (i.e., fixed rate vs. variable rate), and pay attention to mortgage fees, as these can be significant. Having this information in hand will put you in a better position to negotiate with your preferred lender.
Often, lenders will quote you a rate that includes the interest and some upfront fees, such as lender points and origination costs. It’s important to ask for a breakdown of the rate being quoted so that you are fully aware of what you will be paying each month. It’s also worth considering purchasing discount points in order to achieve a lower rate, as this will decrease the amount of your monthly payment.
A strong credit score and a solid income will also help you in your efforts to secure a lower mortgage rate. Lenders are more likely to offer favorable terms to borrowers who present less risk. Additionally, demonstrating financial stability with assets and income will also give you greater leverage during negotiations.
If you’re not confident in your negotiating skills, it’s wise to work with a mortgage broker. Mortgage brokers act as intermediaries between borrowers and lenders, shopping around for the best deals on behalf of their clients. While you will still be responsible for submitting an application, a mortgage broker can sometimes save you time and money during the negotiation process by doing most of the heavy lifting.
Know What You Can Afford
Many homebuyers focus on the price of their home, but mortgage rates are also an important consideration. A lower interest rate will save money over the life of your loan and can make a substantial impact on your monthly payments. Knowing how to negotiate mortgage rates and fees puts you in a stronger position when pursuing a new loan, or refinancing your existing one.
When negotiating with a lender, it’s important to know what your creditworthiness is and what rates are currently available. You can find out by checking your credit report and monitoring mortgage rates in the market. Knowing these details can help you formulate a plan of action and set realistic goals. For example, you might be able to get a better mortgage rate if you’ve been paying down debt and avoiding new credit inquiries.
You can also improve your negotiating position by having a strong employment history and solid financial situation. This will show lenders that you’re a low risk borrower and can pay back the loan. It’s also a good idea to shop around for the best mortgage rates. Different lenders offer different rates, and even a couple of percentage points can make a big difference in your loan’s cost.
In addition to your interest rate, you’ll also be responsible for mortgage fees and closing costs. These fees can include application, appraisal, title insurance, and attorney’s fees. Lenders are usually willing to reduce or waive these fees in order to attract borrowers. By comparing Loan Estimates from multiple lenders, you can identify which costs are negotiable and which are non-negotiable.
While you’re shopping for mortgage rates, be sure to ask about any special promotions or discounts that may be available to you. Taking advantage of these offers can save you thousands over the course of your loan. If you’re a loyal customer of a certain bank, it might be worth considering seeking a mortgage from that institution to benefit from their loyalty program.
Know the Lender’s Terms
There are a lot of different mortgage lenders you can choose from, and they each offer slightly different loan terms. That makes it crucial to shop around and compare offers from several different lenders in order to get the best possible deal. A mortgage broker can act as a one-stop-shop for you and will provide quotes from multiple lenders to give you an idea of the competitiveness of the market. However, you should keep in mind that mortgage brokers typically charge a fee for their services, so be sure to factor this into your budget.
When you’re shopping around, be sure to get quotes from a variety of lenders, including banks and credit unions, as well as online mortgage companies. This can help you identify which lenders may be willing to negotiate on certain terms, such as closing costs and interest rates. It’s also a good idea to check with your own home bank, as they may be able to offer you loyalty discounts or perks that can save you money.
Mortgage lenders have some flexibility in their lending terms, but the amount of wiggle room they have can vary depending on factors such as market conditions and how busy they are. This means that it’s important to prepare for the negotiation process by doing your research, having a strong credit profile and being ready to make concessions to secure the best possible deal.
You should also be aware that the cost of your mortgage can be affected by your choice of points, which are upfront fees that can reduce your interest rate. This can be a worthwhile expense, but it’s a good idea to weigh the pros and cons of this option before making any commitments. Finally, be sure to keep an eye on mortgage interest rates, as they can fluctuate daily and can impact the total cost of your loan.
Effectively negotiating the terms of your mortgage can save you thousands over the life of the loan. By doing your research, preparing and being confident in your financial standing, and taking the time to compare lender offerings, you can increase your chances of scoring a great rate on your new home loan.
Know Your Options
Mortgage brokers and loan officers often work with multiple lenders to find the best rates. As a result, they know which lenders are more receptive to negotiating and which ones offer deals that align with your circumstances. A mortgage broker’s services also typically come at a fee, though it may be lower than that of an in-house mortgage banker.
When shopping around, compare the interest rate and closing costs of each lender to make apples-to-apples comparisons. Keep in mind that lenders often charge additional fees, such as loan origination and application fees, title insurance, property taxes, credit report and appraisal fees, to name just a few. These fees can add up, so it’s important to shop around and negotiate as much as possible to reduce them.
In addition, mortgage rates vary widely depending on a variety of factors. For example, a lower credit score can impact your mortgage rate, since lenders may view you as more of a risk. If you have a low credit score, consider working to improve it prior to applying for a mortgage to give yourself more leverage in negotiations. You should also be sure to factor in current market conditions when comparing rates, as high demand can prompt lenders to offer competitive rates in order to secure your business.
It’s important to note that even if you have a good relationship with a lender, it doesn’t necessarily mean they will be willing to lower your mortgage rate or waive fees. However, if you’ve been a loyal customer, they may want to reward you with a better deal.
Whether you’re shopping for the best mortgage or simply trying to get the most bang for your buck, knowing how to negotiate will help you save thousands of dollars in the long run. With just a few tips, you can easily shave off a few percentage points from your mortgage rate and significantly reduce your overall borrowing costs. So what are you waiting for? Start negotiating your way to a great mortgage rate today!
