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How to negotiate a better mortgage rate for your home loan

Gina Pogol
The Mortgage Reports contributor

To negotiate mortgage rates, first you have to shop

Finding a mortgage with a fair interest rate and good terms is much easier today than it was in years past. 

Online applications make it relatively simple to get mortgage rate quotes. You can choose the lowest bidder, or even take your best rate quote back to your lender of choice and ask them to match it. 

This is what people mean by “shopping around” for a mortgage. 

Freddie Mac studies have shown that shopping around can save home buyers a lot of dough — $1,500 by getting just one extra quote, and $3,000 for five quotes on average. 

Surprisingly, though, many home buyers and refinance candidates skip the shopping part. About half go with the first lender they talk to, according to Freddie Mac. 

As a consumer, you should exercise the power afforded you by new regulations and technology that make shopping easier. 

Not comparing mortgage rates means you’re leaving money on the table. 

Shop multiple lenders by clicking here (Dec 9th, 2019)

In this article:


Can you negotiate mortgage rates? 

Many home buyers aren’t aware that you can negotiate mortgage rates. But it’s not as simple as haggling over percentage points. To negotiate your mortgage rate, you’ll have to prove that you’re a credit-worthy borrower. And your chances of getting a better mortgage rate may improve if you start negotiations with a lower rate quote from another lender in hand.

Find low rates from major lenders now (Dec 9th, 2019)

How to negotiate mortgage rates 

The best thing you can do to get a low mortgage rate is shop around. You’ll get a unique rate quote from every lender. Compare the interest rate, closing costs, and points included in these estimates. You’ll see which lender actually has the most competitive costs over the life of a 30-year mortgage. 

Remember: The company with the lowest upfront mortgage rate might not actually be the “cheapest” company once points, fees, and closing costs are tallied up.

The company with the lowest upfront mortgage rate might not actually be the “cheapest” company once points, fees, and closing costs are tallied up.

Lenders do have some flexibility with the rates they offer you. So if you prefer one lender — maybe because you know the loan officer personally, or have a branch nearby — don’t be afraid to bring them a lower estimate and see if they can match it. 

In some cases, the company you want to work with will be able to lower your rate to compete with other loan estimates. Other times it won’t — but it never hurts to ask.

Negotiate your mortgage rate with discount points

You also have the option to buy “discount points” with most lenders. That means you pay a little more up front for a lower mortgage rate over the life of the loan. Typically, one discount point costs 1% of the total loan amount, and lowers your rate by about 0.25%.

  With NO discount points With ONE discount point
Loan amount $200,000 $200,000
Cost to purchase discount point $0 $2,500
Mortgage rate 3.75% 3.50%
Interest paid over 30 years* $133,446 $123,315

*Loan assumptions: $250,000 home price purchased in the state of Washington with 20% down. Rates and interest payments shown are for sample purposes only. Your own rate and payments will vary.

In this scenario, purchasing one point costs $2,500 at the closing table. But it would save the homeowner more than $10,000 over the life of their loan. 

Compare personalized loan estimates today (Dec 9th, 2019)

When you can and can’t negotiate your mortgage rate

In many cases, a lender can’t give you a better deal than they give another similar borrower. That would be considered discriminating against the other borrower.

However, there is some room for negotiation.

For example, lenders are allowed to credit closing costs to a borrower when delays result in a blown rate lock, or when it’s necessary to be competitive if rates suddenly fall.

The big caveat, though, is that the loan officer’s commissionable income must not be affected by the negotiations.

A successful mortgage rate negotiation reduces income to the lender, therefore, but never to the loan officer. This keeps the loan officer’s interest aligned with the customer’s, and this is good.

For customers looking for the best possible mortgage rate, then, it’s always good to ask.

Lenders have less flexibility to change rates or fees, but there are situations when it’s possible — especially when unforeseen events increase your loan closing costs.

How mortgage rate negotiations used to work  

A mortgage loan officer or mortgage broker acts as a go-between. They connect you, the consumer, with the lender or investor putting up the money for your home loan.

Brokers work independently, functioning as the sales force for wholesale mortgage lenders. Loan officers are the sales force for the lender that employs them.

Loan officers and mortgage brokers typically work for commissions. And of course, they want to maximize this income. No one wants to work for free.

In the past, there were only three ways for lending professionals to increase their commissions:

  • Increase the interest rate
  • Increase the closing costs
  • Increase the loan amount

This is where the idea of “shopping around” for a mortgage first came from. There was always a chance that at least one loan officer would be willing to work for a smaller commission, which would get you a better deal.

Realizing the system was “unequal”

Loan officers are salespeople and, under the old system of mortgage lending, each had incentive to offer customers the highest mortgage rates possible in order to maximize bank revenues and their own personal commission.

Of course, borrowers were free to check with other lenders to see if they could do better. Just like you can shop for deals when you buy a car.

But a closer analysis of this practice revealed that all customers were not treated equally.

Some customers received very high mortgage rates, and some received very low mortgage rates. Sometimes, loan officers willingly reduced closing costs, and other times they did not. It depended on their individual style of operating.

Mortgage rates sometimes varied by as much as 50 basis points (0.5%) between borrowers of similar traits and characteristics, at the same lender. And it was much easier for discrimination to creep into the process.

Why the system for negotiating mortgage rates changed

Charging different fees to similar customers is a potential mortgage lending law violation. And, ultimately, the government levied fines on a lot of U.S. banks for their “disparate treatment” of customers.

In response, banks stopped the negotiation process.

Loan officers were to receive the exact same commission regardless of what mortgage rate or fees they charged to their customers.

Under the new rule, loan officers had no reason to raise mortgage rates for higher fees; or, to charge more points on a particularly “tough” loan. All loans were worth the same.

If you called your lender and tried to negotiate a lower rate sometime between 2010 and 2014, you would have found it unlikely.

Mortgage lenders didn’t negotiate when it could result in unfair treatment. Your rate was your rate, regardless of what competing lenders offered you. 

How to negotiate your mortgage rate today

Shopping around is still a viable way to get low mortgage rates. But the negotiation process is much more regulated. That’s why we talk about tactics like comparing loan estimates and purchasing discount points to lower your rate — rather than trying to bargain with your loan officer. 

In today’s market, some lenders are more efficient than others. They lower operating costs by using online applications and digital processing. And those overhead savings often get passed on to customers. 

Others lenders do such high volume that they can afford to charge lower rates and fees, and still turn a profit. 

And most every lender has some sort of niche. Some mortgage companies are friendlier toward low-income or low-credit borrowers, some are better for self-employed people, some have jumbo loans for multi-million dollar homes, and so on. 

So, shopping around doesn’t just give you ammo for negotiating a lower mortgage rate. It also helps you pinpoint mortgage lenders that specialize in the type of loan you need. And that lender will be more likely to give you a competitive rate, regardless. 

Find the right mortgage lender for you (Dec 9th, 2019)

What are today’s mortgage rates?

Today’s mortgage rates are low, but may be cheaper at some banks than others. It’s always good to shop around to find the lowest rate possible.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Dec 9th, 2019)