When buying a home or refinancing your current mortgage, one of the most important factors to look out for is your interest rate. And negotiating a lower interest rate can save you thousands of dollars over the course of your loan.
If you’ve bought credit before, your mindset may be that you have to accept the interest rate offered by the bank. The good news, however, is that there are many ways you can improve this rate. In this article, we’re going to share five of the best ways to negotiate a lower mortgage rate.
5 Ways To Negotiate A Better Mortgage Rate
The first rate quote you receive is not always the lowest. Whether you’re buying a new home or refinancing your current mortgage, there are a few ways you can negotiate a cheaper interest rate.
1. Compare the interest rates of other lenders
Mortgage rates can vary widely from lender to lender. Even if you look at just the best mortgage rates on the market, you will find that they can vary by more than a whole percent. And not only is the best interest rate different from each lender, the interest rate you get from each lender can depend on many factors. Each lender takes into account your creditworthiness and debt-to-income ratio, among other things. However, some may offer you very different prices.
The good news is that you can easily get rates from multiple lenders. Many lenders allow you to pre-qualify, which doesn’t require a hard request.
[ Read: Best Investment Property Mortgage Rates ]
2. Ask the lender to find an offer with a lower interest rate
Don’t be afraid to negotiate with lenders after they make you an offer. Once you start soliciting quotes from multiple lenders, you can use these pre-qualification letters to try and bring them down. Contact a loan officer of the lenders you are considering and ask them to keep the lowest interest rate you stated. Negotiate until you can no longer get the lenders to lower their interest rates. While it feels weird to negotiate, remember that your business is just as important to them as it is to you. If you are a creditworthy borrower, they are ready to work with you.
3. Use discount points
Mortgage points allow you to lower your mortgage rate in exchange for a prepayment. Generally, you pay 1% of the mortgage amount for every 0.25% interest rate cut. Not all mortgage lenders offer points, but those who do may allow you to purchase multiple points. Do the math and see how much each 0.25% interest rate costs you over the life of a 30 year mortgage and you will see why this is such an attractive option.
4. Strengthen the mortgage application
The best interest rates are usually reserved for the most creditworthy borrowers. Hence, one of the best ways to get a lower interest rate is to improve your financial situation. You may have to postpone buying a home for a while, but it could definitely be worth it. Some ways you can improve your mortgage application are:
- Increase Your Credit Score. Your credit score is a big factor in determining your interest rate. Only those who have excellent credit can get the best interest rates. You can increase your rate by paying your bills on time and by reducing your loan utilization.
- Saving a larger deposit. When you make a large down payment, lenders see you as less of a risk before you have more equity in the game. As a result, they are ready to offer a lower price. Taking a little more time to save a larger down payment can save you a lot of money in the long run.
- Repaying debts; to repay debts. Your debt-to-income ratio is an important factor that lenders consider in deciding whether to provide you with a loan. The higher your interest rate, the higher the interest rate a lender is likely to offer you. By paying off more of your debt, you can lower your debt-to-income ratio, and thereby lower your interest rate.
[ Read: How to Raise Your Credit Score ]
5. Consider locking your rate
Mortgage rates were lower than ever last year due to the Fed’s response to the coronavirus pandemic. As a result, it was a good time to buy a home and many buyers could settle for low interest rates.
If you are ready to buy a home but are not quite there yet, you might be concerned about missing out on the low prices. The good news is that if you plan on buying soon, you can now set a plan that can last up to two months.
An interest freeze is when mortgage lenders guarantee a certain mortgage rate if you close a house within a certain number of days. Locking a tariff really only works for those buying a home now as it usually takes anywhere from 30 to 60 days.
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