Are Mortgage Rates Negotiable?

May 31, 2011 13 Comments »

negotiate

Mortgage Q&A: “Are mortgage rates negotiable?”

In short, mortgage rates are 100% negotiable, like many other costs involved with obtaining a mortgage, such as the loan origination fee.

Nothing is set in stone, and there’s certainly plenty of wiggle-room, especially when we’re talking about thousands of dollars changing hands.

However, like anything else you shop for, you may be told that prices/rates are firm, or are as low as they can go.

This isn’t the case, as mortgage rates can always be adjusted up or down in a variety of different ways.

For example, you can buy down your interest rate by paying mortgage discount points.

This isn’t pure “negotiation” because you’re actually paying prepaid interest upfront to lower costs during the loan term, but it does prove that mortgage rates can be adjusted.

The opposite is also true – like in the case of a no cost refinance, where you pay nothing out-of-pocket, but take on a higher mortgage rate to compensate the originator for that lack of costs.

Ask for Multiple Mortgage Rate Quotes

But a more pure form of negotiation involves comparing rates for the same product from a variety of different banks and lenders.

First, you’ll want to obtain multiple quotes from a single lender, by asking for a series of interest rate/cost combinations, as discussed above.

So if the loan officer or mortgage broker offers you a rate of 4.75% on a 30-year fixed with $2,500 in closing costs, you can ask for other options.

What would the mortgage rate be with no closing costs, or just $1,000 in closing costs? What if you paid $5,000 in closing costs?

After getting all those quotes, jot them down, then shop around with other lenders to see who has the best rate and lowest fees.

Once your shopping is complete, you can go back to the lender who offered you the best deal and ask for a slightly lower rate or reduced closing costs, using another bank or broker’s offer as leverage, even if it doesn’t really exist.

There’s a good chance you’re not getting the rock-bottom rate the first time around, so why just accept it as the best offer?

Use Competition to Your Advantage

The mortgage industry is a very competitive space, so mortgage lenders and their representatives will always be willing to work with you to snag your business, assuming you actually qualify.

They may make a little less in the way of commission, but still enough to want to close your loan.

Don’t believe it when they tell you they’re “just breaking even” or “not making enough” to do the deal.  This is simply their justification to make more money while you pay more.  In the end, they need your business more than you need theirs, so remember that during negotiations.

There are also loan originators who work on volume, so for them, just getting your deal, even if they aren’t making a whole lot on the loan itself, could boost their profits and be well worth their while.

So be sure to compare mortgage rate quotes online, visit local banks, and speak to a few mortgage brokers. It’s a big deal to get a mortgage, so why stop at just one or two quotes? Negotiating is a lot easier when you’re pitting multiple lenders against one another.

Just be sure you lock your mortgage rate. If it’s not locked, the interest rate isn’t guaranteed. And if anything, it’s more than likely going to rise from the quote you originally receive. This is the common “bait and switch” story borrowers express after the fact.

Tip: What mortgage rate can I expect?

13 Comments

  1. netta April 29, 2015 at 12:03 pm -

    I would like to compare rates for pre approval how many lenders do you suggest I make outreach to. Also should I space them out or can i apply for examples 3 pre approvals in one day online.

  2. Colin Robertson April 29, 2015 at 2:01 pm -

    Netta,

    It’s entirely up to you. You can shop around without actually applying or providing paperwork just to get a feel for different lenders, though rates won’t be set in stone until you actually apply and lock. There’s no need to space things out as FICO already considers multiple applications for a mortgage in a short period of time as one shopping event with regard to your credit.

  3. Anna November 2, 2015 at 5:28 pm -

    Who is the largest loan company?

  4. Colin Robertson November 3, 2015 at 11:41 am -

    Anna,

    Wells Fargo is the largest residential mortgage lender, if that answers your question.

  5. Lynn Bakeman May 4, 2016 at 10:41 am -

    Thanks for this info Colin. I linked through to this after looking into Costco’s mortgage “program” to try to determine if it was worth re-upping to an Exec membership to get the lender fees down to $350 (their current offer). Since that article was written in 2012, what do you think about their current program. Is it still a marketing arm for First Choice Bank? I’m looking at a cross-country move, purchasing a new home so I went to Quicken for my pre-approval, but their closing costs and APR are pretty high. They promised to be more aggressive when I make a firm offer on a home.

  6. Colin Robertson May 4, 2016 at 2:31 pm -

    Lynn,

    Not sure who Costco works with these days…I think they’ve had partners come and go. You could simply try to negotiate with other lenders outside Costco instead of paying for a membership you might not otherwise need. For example, another lender not affiliated with them may offer no lender fees and a better rate, without having to bother with the executive membership fee.

  7. Lynn Bakeman May 5, 2016 at 9:09 am -

    Thank you, Colin. I readily admit my limitations…my strength is in writing and these high-stakes monetary negotiations make my head spin, so I sincerely appreciate your quick response and advice!

  8. Kerrie May 11, 2017 at 1:34 pm -

    Colin,
    Two days ago my mort guy moved my cash at closing from $219 to $805 – and I’m supposed to be closing tomorrow. This is after our interest rate has gone from 4.25 up to 4.5 then after I said something about the change adjusted to 4.375 – this is with an excellent credit score and we are in a very comfortable equity position with our appraisal. Currently I see other lenders with a 20 yr at 3.5% 3.7% – needless to say – I told him that the change was unacceptable and the closing is off.
    Is it within my rights to shop for a new mortgage? Our lock in date expired on 4/15/17 at 5pm.

  9. Colin Robertson May 20, 2017 at 6:57 am -

    Kerrie,

    You’re always welcome to shop around, but there might be consequences, such as relinquished fees for appraisal and application, so you have to weigh the pros/cons of going elsewhere. If a different lender can give you a lower rate and absorb any lost fees it can make sense to go some place else.

  10. Lorenzo T June 20, 2017 at 5:19 am -

    Feeling a little frustrated. I thought that interest rates were based merely on down payments and credit scores. I applied for a loan with Wells Fargo, was quoted a 4.25% rate with just 11% down.
    Since the mortgage insurance was quite expensive, I decided to come up with 20% down. The loan officer told me that my rate will go up to 4.50% because there’s a “downward rate adjustor” for loan amounts higher than $175K and because my down payment will make my loan amount below $175K, then my rate goes up. I’ve been researching online if there’s such a thing as a rate adjustor and couldn’t find anything.

  11. Colin Robertson June 20, 2017 at 8:25 am -

    Lorenzo,

    Sometimes you can be “penalized” for a very low loan amount because its smaller size means it is less profitable to the bank. If that’s the case, you can either negotiate with Wells or shop other banks to see if there are better offers for your particular scenario.

  12. Christa Prim July 5, 2017 at 10:17 am -

    Hi Colin

    My husband and I are building a home in an active adult community called Robson Ranch which has an in-house lending company. Of course they are recommending we use them (because outside companies aren’t familiar with these types of deals). The process is in several steps. By the time we go to closing, we will have already invested about $45,000 (deposit and options). We have excellent credit and a great DTI ratio, so I believe that we should shop around for a great int.rate.

    Please give me your thoughts.

  13. Colin Robertson July 7, 2017 at 12:17 pm -

    Christa,

    It’s always recommended to shop around to ensure you get a good deal and explore all your options. And yes, builders will likely want you to use their own financing department, which has its pros and cons I’m sure. The pros are that they really want to close your loan, I assume, the cons are that the pricing might not be as good as other lenders. You can also always negotiate with them directly, or get some other quotes and then try to negotiate if they’re significantly better. Good luck!

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