Are Interest Rates on Mortgages Negotiable?
Other than the principal itself, interest is typically the biggest expense you’ll incur when you take out a home loan. In fact, most homeowners end up paying half or more of their principal in interest over the life of their entire loan. For example, on a $300,000, 30-year loan with a 5% interest rate, a borrower would pay nearly $280,000 in interest before paying off the entire loan.
Due to the expense of mortgage interest, it only makes sense that you would want to do everything in your power to pay a lower interest rate. But how? Oddly enough, you could first try by asking! Negotiating with your lender to reduce your potential interest won’t work in every situation, but it can pay to know when and why it might work -- and what you can do to swing the results a little more in your direction.
Get Quotes From Multiple Lenders To Start The Negotiation Process
The best way to start your interest rate negotiation is to get quotes from three to five lenders. In addition to doing online research, ask friends and family which lenders they’ve worked with, and who has given them the best rates. After asking for a quote, lenders will usually send you a GFE (Good Faith Estimate) and a TIL (Truth-in-Lending) disclosure. In these documents, the lenders will disclose both the interest rate of the loan, and add the interest rate to other costs (i.e. closing costs, fees, etc.) in order to get the loan’s annual percentage rate (APR).
After Getting Quotes, Compare Your Loan Options In Depth
Once you have your quotes, take a careful look at them to compare them against one another. Once you’ve narrowed down your options to two or three lenders, you’ll want to call them to get more specifics. In most cases, you should request to see one quote with a lower interest rate and higher closing costs, one quote with a higher interest rate and lower closing costs, and one quote that’s somewhere in between.
After Receiving Additional Quotes, Call Lenders Again to Negotiate
Once you get at least two to three quotes from each lender, you should call each of them back for a final round of negotiations. Mention the best parts of the other loans you’re looking at, in the hopes that you can get a lender offering a loan with low closing costs to also offer a lower interest rate, or a lender offering a loan with lower interest rates to lower their closing costs.
Be Careful When It Comes to Credit Scores
During your home loan search process, you want to be careful to tell lenders not to pull your credit score -- at least until you’ve made a final decision on which one you’re going with. Having multiple credit score pulls during a short period of time can negatively impact your credit, which is the last thing you want when you’re still searching for a mortgage. Instead, try going on a free website that will just show you your current credit score -- not produce a full credit report, as this is unlikely to negatively affect your credit.