Yes, Mortgage Rates Are Negotiable: Here's How

Yes, You Can Negotiate Mortgage Rates: Here’s How To Do It

Understand posted vs. special rates when shopping, and use a mortgage broker (if you're skittish) to find success when negotiating mortgage rates.

When hammering out mortgage details with a lender, you can — and should — negotiate your mortgage rate. Regardless of what the current mortgage rates are on the lender’s website, don’t assume they can’t go lower.

You’ll likely pay a higher rate if you accept the first offer you’re presented. It’s in your best interest to reject it and ask your lender to put a better one on the table.

Negotiating a mortgage rate is relatively easy if you’re prepared. Trying one or more of the following approaches can save you some real money on your next mortgage.

Key takeaway: When getting or renewing your mortgage, you should never accept the first offer made to you. Instead, shop around and negotiate until you get a contract that suits your needs. By doing the research and putting in a little bit of work, you can save big.

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When should you negotiate a mortgage rate?

Generally speaking, there are three specific times to negotiate your mortgage.

When getting a new mortgage. This is arguably the best time to negotiate as multiple lenders will want to land your business. Take the time to shop around or see if your preferred lender is willing to match or beat the competition.
When renewing your mortgage. Your current lender will send you a mortgage renewal letter a few months before your mortgage term is up. Instead of accepting the contract, take a look at other offers out there. You could save big if you switch.
When rates are dropping. If mortgage rates have dropped, you may be able to refinance your mortgage to get a better rate before the term expires. Finding out what prepayment penalties would apply is a must when refinancing mid-term.

Six tactics for negotiating a better mortgage rate

1. Understand lenders’ posted mortgage rates

If you’re applying for a mortgage for the first time or renewing your current one, you’ll likely encounter a financial institution’s posted mortgage rates. These are the mortgage rates they advertise publicly.

Posted rates are like the sticker price on a new car. They’re useful as a starting point for negotiations, but not the amount many people wind up paying. You should be able to get a better rate than the one posted, as long as you negotiate.

You’re probably wondering why they even bother posting rates if you’re going to get a discount anyway. Occasionally, uninformed homebuyers agree to posted rates. More commonly, lenders use the posted rate to calculate the interest rate differential (IRD) prepayment penalty if you ever need to break your mortgage.

Nerdy Tip: One thing to look for when negotiating down a posted rate is a lender’s current discounted or special mortgage rates. If a bank’s posted rate on a five-year fixed-rate mortgage is 6.5%, but it’s also offering a special rate of 5.5% on the same product, ask for the discounted rate and see what happens. Even if you’re not eligible for it, at least you’ve established that you aren’t willing to pay the posted rate.

2. Shop around

You should always shop around when getting a new mortgage or renewing your current one. The mortgage rates offered by various lenders will be similar, but the difference between rates could end up saving you thousands of dollars.

The difference in interest paid between a 5% and 5.5% fixed rate on a $375,000 high-ratio mortgage would be about $9,400 at the end of a five-year term.

All you need to do is call a few lenders or visit a few websites to get a sense of what offers are currently out there. (In many cases, you can fill out an online application so you don’t even need to pick up the phone.) With several different quotes in hand, you can then see if your preferred lender is willing to match the lowest rate you received.

3. Ask for a lower rate

Even if you’ve been offered a discounted rate, it never hurts to ask whether your lender can do better.

Lenders are never going to loan money out at a loss, but you won’t know how low they’re willing to go unless you ask. A simple, “Is that the best you can do?” might be one way to avoid leaving money on the table.

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4. Use a mortgage broker

If you don’t have the time or inclination to shop around on your own, you may want to enlist the services of a mortgage broker.

Mortgage brokers don’t work for one specific lender, so they can compare offers from multiple lenders to find you the lowest rate and best terms. Brokers can also be helpful for applicants in more challenging situations, like the self-employed or borrowers who have experienced credit difficulties in the past.

Because brokers get paid by lenders and not borrowers, there’s no financial reason to avoid using one.

» MORE: What’s the difference between a fixed and variable-rate mortgage?

5. Build up your credit score

Quite often, getting the best interest rate comes down to presenting yourself as a low credit risk. If you have a large down payment and excellent credit history, lenders are more likely to give you the best rates during negotiations since they can trust you to pay back the loan. Accounting for all income sources when filling out your application helps too, since lenders will want to know how you’ll make your payments.

If you currently have outstanding debt, you may want to try to reduce it before you apply for a mortgage. As a result, it will improve your total debt service ratio and show lenders you have ample room in your budget for a mortgage payment.

6. Keep an eye on rates

Even if you’re paying down your mortgage and are comfortable with your monthly payment, it’s still a good idea to keep an eye on rates just in case they fall.

Let’s say you’re on a fixed-rate mortgage, but interest rates have dropped significantly. You could check with your lender to see if you can blend and extend your mortgage. This would allow you to get a new mortgage at a rate in-between your original mortgage and current rates. If you have a variable mortgage and rates start to increase, your lender may allow you to switch to a fixed-rate mortgage.

In both situations, you could end up saving a ton of money by staying vigilant and making a well-timed switch.

» MORE: Should you get an open mortgage?