Four ways to negotiate lower mortgage rates

October 4, 2022 - 7 min read

Can you negotiate mortgage rates?

Yes, you can and should negotiate mortgage rates when you’re getting a home loan. Research confirms that those who get multiple quotes get lower rates. But surprisingly, many home buyers and refinancers skip negotiations and go with the first lender they talk to.

Instead, exercise your power to get multiple rates and ask for the best deal. Not negotiating means you’re leaving money on the table.

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How to negotiate mortgage rates

Whether you’re a first-time home buyer looking for a new home or a homeowner who wants to refinance your current mortgage, negotiating the best mortgage rate is possible. However, it’s not as simple as haggling over percentage points.

To negotiate a better mortgage rate, you’ll have to prove that you’re a creditworthy borrower. And you’ll have better luck if you come to the table with a lower quote from a different lender in hand.

Here are four strategies to negotiate for your best mortgage rate before you lock:

  1. Shop around with multiple lenders
  2. Ask your lender to match lower interest rate offers
  3. Negotiate with discount points
  4. Strengthen your mortgage application

We cover each rate-negotiation strategy in more detail below.

But the rule of thumb is this: If you have strong personal finances, and you’re willing to get quotes from different lenders, you can usually find a lower rate for your mortgage.

How to shop for a lower rate

While it may take some time, shopping around for a low mortgage rate is well worth the effort. Even a slightly lower interest rate can save you money on both your monthly mortgage payments and throughout the life of your loan.

As an example:

  • The monthly payments on a 30-year fixed-rate mortgage for $300,000 at 4% is $1,815
  • That same loan, with a 3.75% interest rate has monthly payments of only $1,774
  • While a monthly savings of $41 may not sound like much, you’ll save $14,760 over the life of a 30-year loan

To see similar savings, request rate quotes from multiple lenders. Each lender will provide you an estimate that will help you compare mortgage interest rates, closing costs, lender fees, and other borrowing expenses like home appraisal fees, credit report fees, and title insurance.

Remember: providers with the lowest upfront mortgage rates might not actually be the “cheapest” 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 they have a branch nearby — don’t be afraid to bring them a lower estimate, and request that they 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 they won’t — but it never hurts to ask.

How to negotiate a better mortgage rate with discount points

You also have the option to buy discount points with most mortgage lenders. Discount points let you pay a little more upfront 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 percent.

Mortgage discount points example:

 With NO discount pointsWith ONE discount point
Loan amount$200,000$200,000
Cost to purchase discount point$0$2,500
Mortgage rate3.75%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.

Strong loan applications help you negotiate better mortgage interest rates

This strategy might not be as helpful if you’re close to closing on a mortgage loan. But if you have a little more time before you lock your rate, consider that a stronger application gives you some leverage to negotiate your mortgage rate.

Basically, the better your financial situation, the more lenders want your business. And the more they’re willing to negotiate to get it. That could mean trying for a:

  • Higher credit score: Take steps to raise your score before you apply. Good credit scores generally get lower rates
  • Bigger down payment: A larger down payment often leads to a lower mortgage rate. You’ll save even more if you can put 20% down and avoid private mortgage insurance (PMI)
  • Lower monthly debts: Paying off some debt from credit cards or other loans, before you apply, leads to a lower debt-to-income ratio (DTI) and often a lower mortgage rate

Of course, raising your credit score, saving for a down payment, or paying off debts all take time. But if you can wait a little while — or, if your rates look worse than you thought, and you want to make a change before trying again — these are good ways to score a significantly lower mortgage rate.

Tip: Use a mortgage calculator and pull your credit history

Using a mortgage calculator can help you understand how down payment, credit score, and interest rate impact your mortgage payment.

Additionally, if you haven’t checked your credit history, you can do so by requesting free copies of your credit reports from the three major credit bureaus: TransUnion, Equifax, and Experian.

Why you have to shop to negotiate rates

Mortgages are a lot more regulated than they used to be. As a result, individual loan officers have less flexibility to change rates from customer to customer. 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 real estate 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. Other providers do such high volume that they can afford to charge lower lender fees and rates, and still turn a profit.

Most every lender also has some sort of niche with different types of mortgages. Some are friendlier toward low-income or low-credit borrowers, some are better for self-employed people, some have jumbo loans or FHA loans, and so on.

So shopping around doesn’t just give you leverage 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.

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. Therefore, a successful mortgage rate negotiation reduces income to the lender 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 homeowner or home buyer, 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 bank or credit union 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

Under the old system of mortgage lending, loan officers 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 real estate industry.

Why the system for negotiating mortgage rates changed

Charging different lender fees to similar customers, like loan origination fees or underwriting fees, is now a potential mortgage lending law violation. And, ultimately, the government levied fines on a lot of U.S. banks for their “disparate treatment” of home buyers.

In response, banks and credit unions stopped this 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 from then on.

Mortgage lenders didn’t negotiate when it could result in unfair treatment. Your rate was your rate, regardless of what competing lenders offered you. That’s why today, you generally have to shop around and compare lenders to find the lowest rate.

Lenders might have some wiggle room. But you’re a lot more likely to have a successful negotiation if you can show that another lender offered you a lower rate for the same application. That gives you real leverage.

What are today’s best mortgage rates?

Even when mortgage rates are on the rise, some lenders offer better deals than others It’s always good to shop around to find the lowest rate possible. We recommend comparing rates from at least three to four lenders to find your lowest offer.

Gina Freeman
Authored By: Gina Freeman

The Mortgage Reports contributor

With more than 10 years in the mortgage industry, and another 10 years writing about it, Gina Freeman brings a wealth of knowledge to The Mortgage Reports as its Associate Editor. Gina works with a team of world-class real estate and finance writers to bring timely and helpful news and advice to the audience. Her specialty is helping consumers understand complex and intimidating topics.