How to Negotiate a Better Mortgage Rate

October 15, 2020 Loans & Finance

When you’re searching for a mortgage, you don’t have to sign with the first bank that offers you a deal.

Mortgage rates vary by lender — so shopping around and comparing offers can help you pinpoint a lower rate and save money over the life of the loan. Nearly half of homebuyers stop after getting just one rate quote, according to a study by Freddie Mac. But by taking a few extra steps, you could potentially save thousands on interest costs.

Here are five ways to negotiate your mortgage rate:

  1. Compare rates from multiple lenders
  2. Improve your finances
  3. Ask for a rate match
  4. Use discount points
  5. Bonus: Lock in your rate

1. Compare rates from multiple lenders

In the Freddie Mac study, homebuyers who got at least one additional rate quote saved $1,500 over the loan’s life, on average. Getting five quotes doubled average savings.

When you’re shopping for a mortgage, you should compare rates from multiple lenders. But keep in mind: The lender with the lowest interest rate might not be the best deal when you add up the other costs. So compare interest rates, closing costs, fees, and any discount points included in the estimates.

Credible can help you compare mortgage rates from multiple lenders — you can see your prequalified rates from our partner lenders in the table below in just a few minutes.

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2. Improve your finances

Having a strong financial footing can help you score a great interest rate. Generally, lenders give the best interest rates to borrowers with a credit score of at least 760 and a debt-to-income ratio of around 45% or less.

If your credit score needs work, you can improve it by:

  • Making your bill payments on time: Late payments can hurt your credit scores.
  • Paying down collection accounts: These derogatory marks can lower your scores, too.
  • Checking your credit reports frequently: Report errors or potential fraud to the credit bureaus. These corrections can improve your score.
  • Paying down your debt: Using a high percentage of your available credit can hurt your scores, so aim to keep your credit card balance around 30% or less. Paying down some of your loan balances can also help.
  • Keeping your accounts open: Having a long credit history can help boost your credit scores, so keep your credit cards open if possible.

You can also lower your DTI by:

  • Paying down some or all of your debts. Having lower monthly debt payments can help lower your DTI, which will improve your chances of qualifying for the loan and scoring a lower rate.
  • Increasing your income. Earning just a little more can help tip the DTI ratio in your favor. Consider taking on a side hustle for extra income, or asking for a raise at work.

Additionally, a larger down payment can put you in a more favorable position with your lender. Because your mortgage is smaller, the lender takes on less risk. Some home loan programs allow down payments as low as 0% to 3.5% — but a lender may lower your interest rate if you can manage a larger amount.

Tip: Check for state and local homebuyer programs, which offer down payment and closing cost assistance.

In the table below, you can get an idea of how much more you might pay in interest over the life of a loan with a poor credit score, based on a $200,000 home loan.

Credit score Interest rate Monthly payment Total interest paid
760-850 2.577% $798 $87,378
700-759 2.799% $822 $95,806
680-699 2.976% $841 $102,624
660-679 3.19% $864 $110,982
640-659 3.62% $912 $128,154
620-639 4.166% $974 $150,665
Note: All numbers here are for demonstrative purposes only and do not represent an advertisement for available terms.

3. Ask for a rate match

In today’s market, plenty of lenders are competing for your business — which puts you in a good position to negotiate. Armed with your rate quotes and strong financial position, start by asking for a rate match.

This part is easier if you have loan estimates, which lenders must provide within three days of applying for a mortgage. With this document, you can do an apples-to-apples comparison of every fee the lender will charge and determine where it makes sense to negotiate.

For example: Say Lender A has a great reputation and quoted a high interest rate but lower closing costs. Lender B, on the other hand, offers a great rate — so you send their offer to Lender A and ask for a match. To score your business, Lender A might be willing to lower the interest rate.

But remember that even if you can’t get a lower interest rate, you might be able to haggle on the closing costs.

4. Use discount points

When a lender gives you an estimate, the rate may include discount points. These are optional fees you can pay the lender to slightly lower your mortgage rate. Typically, one point costs 1% of the home value — so you would pay $1,500 to buy one point on a $150,000 loan.

How much the point lowers your rate will vary by lender. Because it can take several years to break even on the cost, discount points can be a good option if you know you’ll be in the home over the long haul.

But you should know whether this cost is baked into your rate, so you can decide whether you’re OK with paying it. Check for discount points on page 2, Section A of your loan estimate.

Bonus: Lock in your rate

Once you’ve found a great mortgage rate, consider locking it in. A mortgage rate lock is a guarantee from your lender that your interest rate won’t rise for a specified period.

Since mortgage rates can change by the day and even the hour, a rate lock protects you from fluctuations in the market.

If you lock and then rates increase, you still get to keep your low mortgage rate. But the opposite is true, too. If rates drop, then you may miss out on the lower rate.

Check mortgage rates:

  • 30-year fixed mortgage rates
  • 15-year fixed mortgage rates

Why you should always negotiate

A mortgage loan could be the biggest transaction you’ll ever make, so it’s important to keep your costs down when possible.

You should always try to negotiate down to a better rate — doing so can potentially save you thousands of dollars in interest costs. While you may not always be able to find a lower rate, it’s also important that you compare multiple lenders before accepting a rate.

Credible makes comparing multiple lenders easy. You can see rates from our partner lenders and get pre-approved for a loan in just three minutes.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

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