Use this trick to get a lower mortgage rate
Mortgage borrowers often think of rate shopping as extra work.
But what if you could make mortgage lenders work hard for you?
By following the right steps, you can make lenders compete for your mortgage and negotiate a lower interest rate.
This will still involve effort on your part. You’ll have to get mortgage rate quotes from different banks and lenders.
But with a little know–how you can make sure you’re getting the best possible deal on your home loan.
In this article (Skip to...)
- Lenders will compete for your loan
- How to make mortgage lenders compete
- Is it hard to get lenders to compete?
- What if I want to refinance with my current lender?
- How to find the best mortgage for you
- More tips to find the lowest rate
Lenders will compete for your mortgage if you let them
You’ve probably heard it before: It’s crucial to shop around and compare rates when you’re shopping for a home loan.
“This is your best shot at getting the best available rate,” says Brian Martucci, a mortgage expert with Money Crashers.
“$2t’s true whether you end up playing lenders off one another in negotiations or simply choosing the best offer provided to you.”
Believe it or not, it’s even possible to pit lenders against one another and get a lower rate.
“$2f you have two or more lenders battling it out for your business, one will almost always be willing to make less money than the others.” –Grant Moon, CEO, Home Captain
“Lenders compete by offering different rates and fees,” says Grant Moon, CEO of Home Captain.
“$2f you have two or more lenders battling it out for your business, one will almost always be willing to make less money than the others.”
Clifford Rossi, a finance professor at the University of Maryland’s School of Business, explains the importance of getting several lenders involved.
“Not only will you be able to secure the best rate and points combination,” he says, “$2ut a good lender will also help place you in the best product – such as a fixed–rate or adjustable–rate loan, conventional loan, or government–backed loan.”
How to make mortgage lenders compete
Here are six steps you can take to get lenders to compete for your mortgage:
- Gather multiple rate quotes and written Loan Estimates
- Determine your best offer by comparing the rate, loan type, term, monthly payment, and closing costs listed on each Loan Estimate
- Take your best offer to your preferred lender and ask if they can match or beat it. You could do this by calling or simply sending an email with your competing loan offer attached
- If they won’t match or beat your best offer, ask if they will budge on other matters, such as lowering their fees
- Take your new best offer back to the first lender and see if they can match or beat this new offer
- If you are unsuccessful, try getting rate quotes and written Loan Estimates from a fresh batch of lenders and start the process over again
This might sound tedious, but it pays off.
Dropping your rate by just 25 basis points (0.25%) could save you around $30 per month – or $360 per year – on a $200,000 mortgage loan.
Start by getting multiple rate quotes
The trick to getting lenders to fight for your dollars is to make them aware that you are a potential customer.
In other words, you have to shop around and contact several different mortgage lenders.
“One of the most effective mortgage loan negotiation strategies is also one of the easiest and least involved,” explains Martucci.
“$2t requires getting multiple first offers – in the form of rate quotes – from a variety of lenders. Then, it requires presenting your lowest offer to competitors of that lender and seeing if they’ll budge.”
“This is a version of the ‘best offer’ strategy many car buyers employ,” Martucci says. “$2hey shop the lowest offer they’ve been quoted to other dealers in the hopes of encouraging at least one to beat that offer.”
Be sure to get written loan estimates from each lender
“Written [Loan Estimates] are a great tool the lender legally has to provide you, so use it to make them compete with each other,” Moon advises.
If a lender won’t match or beat a competitor’s quoted rate, it may be willing to sweeten the deal in other ways.
“They can compete, for example, by offering to speed up the mortgage process, lower their fees, or simplify the documentation requirements,” adds Rossi.
Check on your credit score and finances first
Karen Condor, a finance and real estate expert with USInsuranceAgents.com, says it’s important to do your homework before you begin the rate shopping process.
“It’s easier to get lenders to compete and be flexible about rates if you have a good credit score, solid credit report, higher down payment, and low monthly debts.”
“$2ork to get these items in order ahead of time,” says Condor.
This will ensure you’re in the best position to negotiate for a low rate and even reduced closing costs.
Is it hard to get mortgage lenders to compete?
Truth is, it may be harder nowadays to get lenders to duke it out for your dollars.
That’s because mortgage rates remain at or near historic lows, and lenders have plenty of business as a result.
“The low–interest–rate environment we’re living through right now has lots of benefits for consumers and home buyers,” says Martucci. “$2ut it complicates buyers’ efforts to get lenders to compete for their business.”
“$2urrent interest rate spreads – meaning lenders’ profit margins – are narrow by historical standards.
“$2hat means lenders have less leeway to reduce rates without losing money on the deal,” he explains.
Whether or not a particular lender is willing to vie for your patronage often depends on their loan volume at the time.
“If a lender is busy, they will naturally focus on transactions that make them more money,” says Moon.
“But if a lender needs the business, they will be focused on all deals. So the biggest challenge for a consumer is finding a competent lender that will still want your business even if you negotiate them down.”
What if I want to refinance with my current mortgage lender?
If you already own a home and plan on refinancing, you might want to start the search with your existing mortgage lender.
Some lenders offer loyalty discounts to refinance applicants.
“Make sure you ask about this before taking your mortgage elsewhere,” says Martucci.
“$2hese discounts can be especially common when you have substantial funds on deposit with the lender or bank, even if you don’t currently have a mortgage loan with them.”
Put another way, you may be able to get an ideal rate if you already have a high–yield account with a bank offering loyalty discounts.
Ask about a streamline refinance
Homeowners with government–backed loans (including FHA, VA, and USDA mortgages) have another good option for refinancing.
“Call up your current lender when rates have fallen and ask them to do a streamline refinance. They are likely to accommodate your request if you are a low–risk borrower, as losing you as a customer can be costly,” says Rossi.
Streamline refinancing is a great way to lower your interest rate, as these loans require little documentation and can move through the pipeline more quickly than a traditional refinance.
Don’t limit yourself to your current lender
But even if you love your current lender, “you should still shop around for the best rate,” adds Moon.
In many cases, your current bank may not be the best option for a new home purchase or refinance because they don’t specialize in the type of loan you need. Or, their rates may be less competitive.
“$2emember that your existing lender is profiting off of you, so don’t be afraid to ask for quotes from other lenders,” Moon adds.
How to find the best mortgage for you
Whether you’re a first–time home buyer or a current homeowner looking to refinance, don’t just focus on the quoted rate.
“Look closely at the APR – annual percentage rate – in your written loan estimate. This indicates the full cost of the loan with fees added,” recommends Moon.
“Factor in all the closing costs, down payment needed, discount points, prepayment penalties, and if private mortgage insurance is required, too,” Condor suggests.
Also, find out how long the lender will take to close your loan.
Make sure the rate lock offered – typically 30–45 days – will be long enough to get you through to closing day and ensure a low fixed–rate.
More tips to find the lowest mortgage or refinance rate
The bottom line is that you’ll need to do some homework if you want to find the lowest refi or mortgage rate.
Start by checking current mortgage rates so you have an accurate benchmark for comparison.
“The more lenders you check out when shopping for mortgage rates, the more likely you are to get a lower interest rate,” Condor says.
Also, research loan products from various types of institutions to find out what special programs they offer, she continues.
Broaden your search to include credit unions, regional or community banks, direct lenders, and national banks.
You won’t know which is best for you until you’ve explored all your options.