Can You Negotiate Mortgage Rates? | Lower Your Rate 2024 (2024)

Yes, negotiate your mortgage rate

When applying for a home loan, you can indeed — and should — negotiate mortgage rates.

Mortgage interest rates are not set in stone, and research confirms that those who get multiple quotes often secure lower rates. A surprising number of home buyers and homeowners, however, forego negotiations and settle with the very first lender they encounter.

Instead, change that narrative and use your bargaining power to negotiate the best deal possible. If you don’t, you’re most likely throwing money away.

In this article (Skip to...)

• How to negotiate mortgage rates
• Negotiate fees and closing costs
• Tactics for types of borrowers
• FAQ

Can you negotiate mortgage rates?

Yes, you can negotiate mortgage rates. This holds true whether you are a first-time home buyer securing your first mortgage loan or a seasoned homeowner looking for a lower rate with your current lender.

The secret to negotiating mortgage rates is comparison shopping. In fact, a Freddie Mac survey found that borrowers who obtained quotes from multiple lenders were able to achieve lower rates compared to those who didn’t.

When you comparison shop for lower interest rates, you position yourself to negotiate more effectively, potentially reducing your mortgage payments and the total cost of the mortgage loan substantially.

As an example:

• The monthly payments on a 30-year fixed-rate mortgage for $250,000 at 6.75% is $1,549
• That same loan, with a 6.50% interest rate, has monthly payments of only $1,516

While a monthly savings of $33 may not sound like much, you’ll save $11,880 over the life of a 30-year loan

How to negotiate mortgage rates

Whether you’re buying a new home or refinancing your current mortgage, negotiating the best mortgage rate is possible. Can you negotiate mortgage rates? Yes, but it’s not as simple as haggling over percentage points.

Here’s what every negotiator should know about how to get a lower interest rate.

1. Check your credit score

The first step in negotiating mortgage rates is to understand your credit score. This is particularly true if you have good credit, which can significantly enhance your bargaining power. Borrowers considered lower-risk have a greater chance of negotiating mortgage rates with lenders. A high credit score greatly strengthens your bargaining position.

AnnualCreditReport.com allows you to request free credit reports once per year. Here, you’ll get free credit reports from the three major credit bureaus:TransUnion, Equifax, and Experian.

A higher credit score of 750 or above can potentially secure a more competitive rate compared to a score below 600.

If you have a lower credit score, you can make improvements by paying down any auto loans and credit card debt, avoiding late payments, and refraining from opening new credit lines before negotiating interest rates.

2. Identify which type of mortgage is right for you

You have a range of loan options available, such as conventional loans and government-backed loans like FHA loans, VA loans, and USDA loans. You can underwrite all these types of mortgages as either fixed-rate mortgages (FRMs) or adjustable-rate mortgages (ARMs).

Each loan type comes with its own set of terms and conditions that you’ll need to consider when you negotiate mortgage rates. For example, adjustable-rate mortgages may offer low introductory rates but can be volatile in the long run.

Selecting the right loan type relies on your understanding of your home equity and long-term financial goals.

Tip: A mortgage calculator is a very helpful tool for figuring out possible monthly payments and total loan costs for different types of home loans.

3. Compare rates from multiple lenders

To find the best mortgage deal, start by asking multiple lenders for initial rate quotes. This helps you see who offers lower rates. Next, apply for pre-approval with the lenders that fit your needs best. They’ll send you Loan Estimates, which detail the rates, fees, and terms for each mortgage.

Remember, getting pre-approved doesn’t lock you into choosing that lender, as the Consumer Financial Protection Bureau (CFPB) points out. Wait until you’ve made an offer on a house and received Loan Estimates from all potential lenders before deciding. Try to do all this within a 14-day period to avoid hurting your credit score too much.

Besides the mortgage interest rate, look at the Annual Percentage Rate (APR), which includes the interest rate and other upfront costs like discount points and origination fees. This gives you a fuller picture of the loan’s total cost. Lenders must give you a Loan Estimate with the interest rate, APR, monthly payments, and a list of fees within three days after you apply.

Comparing these estimates helps you spot the differences between lenders. Some may offer lower rates but higher fees, and vice versa. This comparison lets you choose between a lender with lower initial costs or one that offers savings over the life of the loan.

Don’t forget mortgage brokers

You can also opt to work with a mortgage broker, who can both find the lowest rates and negotiate on your behalf. A broker often knows which lenders are more receptive to negotiation or offer deals that align with your circ*mstances.

4. Make your loan officer compete for your business

With several different Loan Estimates in hand, it’s time to negotiate mortgage rates with potential lenders. Now, it’s time to turn competition into your bargaining chip. When you receive a lower interest rate offer from one lender, use it to persuade another lender to match or even undercut that rate.

Openly and professionally communicate the lower offer to your preferred lender, expressing your interest in working with them while emphasizing the financial implications of the lower rate. Do not be afraid to mention that a matched or better rate may sway your decision.

Example: You could say, “I appreciate the service you provide and am eager to finalize my home loan with you. However, I received a loan estimate from another lender at 6.75%, as opposed to the 7% that you’ve offered. If you could match or beat this interest rate, it would have a significant impact on my decision to work with you.”

Most lenders place a high value on customer acquisition and retention, making them open to negotiations, including the opportunity to negotiate mortgage rates. However, if the lender does not match the offer, it’s wise to be prepared to explore other lending options.

5. Consider buying down your mortgage rate

Buying down your rate is when you purchase discount points from your mortgage lender. By purchasing a discount point, you pay a fee in exchange for a lower mortgage rate throughout the duration of the loan. Usually, you pay 1% of the total loan amount for one discount point, which reduces your rate by approximately 0.25 percent.

Mortgage discount points example:

*Loan assumptions: $400,000 home purchased in the state of Florida 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 $4,000 at the closing table. But it would save the homeowner roughly $23,803 over the life of their loan. Discount points are often beneficial when buyers plan to stay in their homes for a long time.

6. Lock in your best mortgage rate

Once you’ve found your lowest mortgage rate, it’s time to lock in that rate. A rate lock not only freezes your interest rate but also ensures your monthly payments remain stable throughout the closing process.

Rate locks shield you against rising interest rates, but they also prevent you from taking advantage of any future rate reductions while the lock is in place. However, some lenders offer a rate float-down option to provide more flexibility.

Factors affecting mortgage rates

Understanding the key factors that influence mortgage rates can significantly strengthen your negotiating position. Here’s what you need to know:

1. Economic factors: The overall economic climate, including Federal Reserve policies, inflation rates, and employment figures, impacts mortgage rates. While you can’t control these, staying informed about economic trends can help you time your application or rate lock advantageously.
2. Personal financial profile: Your credit score, credit history, debt-to-income ratio, and down payment size all play key roles in determining your rate. Lenders typically offer better rates to borrowers with higher credit scores, lower debt-to-income ratios, and larger down payments. Focus on improving these factors before applying to strengthen your bargaining power.
3. Loan type and term: Different loan types (conventional, FHA, VA) and terms (15-year, 30-year) come with varying rate structures. Understanding these differences can help you choose the most favorable option.

When considering your mortgage rate strategy, leverage your strengths in these areas and your knowledge of current market conditions to pursue the best possible rate.

Negotiating your mortgage fees and closing costs

Your interest rate is a big part of how much your loan will cost, yet it’s not the only factor to consider when securing a mortgage. There are other upfront costs and fees that accompany it. You should plan to compare and negotiate these fees when you talk to lenders and third-party service providers.

Some are negotiable, while others are typically fixed. Let’s take a closer look at each category.

Negotiable fees

While this is not an exhaustive list of mortgage fees, these are among the most commonly negotiated costs found on your Loan Estimate.

• Loan underwriting or origination fee: Charged by lenders for processing new loan applications, this is usually one of the most substantial fees. It’s negotiable and varies from lender to lender
• Application fee: In certain cases, lenders impose a fee for submitting a mortgage application. However, it’s worth noting that this fee can sometimes be waived or reduced
• Points: These refer to prepaid interest on the loan, paid upfront to decrease the interest rate. The number of points you choose to purchase can be negotiated
• Title services: This covers the cost of title searches, title insurance, and attorney fees. You can often negotiate these costs and shop around for the best deal
• Home inspection and appraisal fees: When it comes to these services, you’re not bound to a single provider. You have the flexibility to explore options, potentially negotiating a lower price
• Real estate agent commission: There’s no law forcing your real estate agent to charge a 3% commission. Ask them to negotiate

Non-negotiable fees

While it’s generally not possible to negotiate the cost of these fees with a single lender, you have the option to compare and contrast them across different lenders. Here’s a closer look at some of these fees:

• Recording fees: These charges cover the legal recording of your new mortgage and title. They are unnegotiable and set by the city or county
• Property taxes: These are also set by your local government based on the assessed value of the property. Unfortunately, they are fixed and cannot be negotiated.
• Prepaid daily interest charges: If your closing falls within the middle of a month, your lender will collect interest from the closing date until the end of the month. This charge is calculated based on your interest rate and the loan balance, making it non-negotiable
• Credit report fees: These fees cover the cost of pulling your credit score and history
• Escrow fees: These are fees for the service of holding your deposit until the transaction is completed. You can sometimes negotiate these fees or choose a different escrow service.
• Mortgage insurance: Depending on the type of loan, you may pay various types of mortgage insurance premiums or guarantee fees, which are all non negotiable. For example, conventional loans charge private mortgage insurance (PMI) with down payments less than 20%.

Tips for reducing closing costs

When negotiating your mortgage fees and closing costs, it’s important to understand which fees are negotiable and how to effectively reduce your upfront costs. Here are some strategies to help you minimize your closing costs:

1. Shop around for service providers. Don’t simply accept the lender’s recommended providers for services like title insurance or home inspections. Compare prices from multiple providers to find the best deals.

2. Ask for a Loan Estimate from multiple lenders. This document breaks down all the loan costs, allowing you to compare offers and potentially negotiate better terms.

3. Consider negotiating mortgage rates in exchange for higher closing costs. Sometimes, accepting a slightly higher interest rate can result in lender credits that offset your closing costs.

4. Look for first-time home buyer programs. Many state and local governments offer assistance programs that can help reduce closing costs for eligible borrowers.

5. Time your closing strategically. Closing at the end of the month can reduce the amount of prepaid interest you need to pay at closing.

6. Bundle services. Some lenders offer discounts if you use their affiliated services for things like title insurance or escrow.

Remember that every loan and every lender are different, so what can be negotiated in one situation might not be in another. Ask questions, try to get clear answers, and try to negotiate whenever you can. Your diligence will result in more affordable mortgage terms.

Mortgage rate negotiation tactics for different types of borrowers

When it comes to mortgage rate strategy, different types of borrowers may need to employ varying strategies. Here are some effective mortgage negotiation strategies for securing a better mortgage rate, tailored to specific borrower profiles:

First-time home buyers

As a first-time home buyer, you may lack experience but often have access to special programs. Use these tactics when negotiating home loan terms:

1. Leverage first-time buyer programs. Many lenders offer special rates or terms for first-time buyers. Mention this status upfront and ask about available programs.
2. Highlight your potential. If you’re early in your career, emphasize your earning potential and job stability to negotiate better terms.
3. Bring a larger down payment. If you’ve saved a substantial down payment, use this as a negotiating point for a lower interest rate.
4. Consider an FHA loan. These often offer competitive rates for first-time buyers. Use FHA quotes to negotiate with conventional lenders.
5. Ask about rate buydowns. Inquire if the seller or lender can contribute to temporarily buying down your rate for the first few years.

Refinancing homeowners

Refinancing can be an excellent way to secure lower interest rates and reduce mortgage payment. Here are some tips for negotiating home loan terms when refinancing:

1. Leverage your payment history. If you’ve been consistent with your current mortgage payments, use this as evidence of your reliability. A strong credit history can be a useful tool in mortgage rate negotiation.
2. Highlight increased home value. If your home has appreciated significantly, your loan-to-value ratio may have improved, potentially qualifying you for better rates.
3. Negotiate closing costs. Ask your current lender if they can offer a no-closing-cost refinance to earn your continued business.
4. Use competitor offers. Get quotes from multiple lenders and use these to negotiate with your preferred lender to secure lower mortgage interest rates.

High-credit-score borrowers

If you have a good credit score, you’re in a strong position to negotiate. Try these tactics:

1. Ask for their best rate upfront. Let lenders know you’re a strong borrower and expect their most competitive offer.
2. Negotiate lender fees. With a high credit score, you might be able to get certain lender fees reduced or waived.
3. Push for faster approval. Your strong credit profile might qualify you for expedited underwriting, which could save you money if rates are rising.
4. Explore relationship discounts. If you have substantial personal finances, ask if the lender offers rate discounts for opening a checking or savings account.

Negotiating with mortgage brokers

Working with a mortgage broker can be advantageous when trying to secure the best mortgage rates. Here’s how to effectively negotiate:

1. Request multiple options. Have your broker present several loan offers from different lenders to compare.
2. Negotiate the broker's fee. While brokers often charge fees for their services, these may be negotiable, especially if you’re bringing a strong financial profile to the table.
3. Use competing offers. If you’ve received better offers elsewhere, share these with your broker to see if they can match or beat them.
4. Ask about lender-specific programs. Experienced brokers might know about special programs or promotions from certain lenders that you can leverage.
5. Leverage your debt-to-income ratio. If you’ve recently improved your DTI, make sure your broker is aware, as it could affect your purchase price range and potentially your rate.

FAQ: Mortgage rate strategy

What are today’s best mortgage interest rates?

Even in a fluctuating market, the ability to negotiate mortgage rates can significantly impact the long-term cost of your home loan.

So, can you negotiate mortgage rates? Absolutely!

We advise exploring options from at least three to four different lenders to secure the most favorable rate. You can begin that process by clicking the link below.