- 9 Ways to Get the Best Refinance Rates
- 1. Look for errors in your credit report
- 2. Keep credit card balances below 25% of your available credit
- 3. Don't quit using consumer credit
- 4. Be wary of 'no-cost' loans
- 5. Consider a shorter loan term
- 6. Resist the urge to take cash out
- 7. Lock in your best refinance rate
- 8. Consider how long you'll live in the home
- 9. Shop rates — and know what they mean
- 12 ways to get the lowest mortgage refinance rates
- No.1: Raise your credit score
- No. 3: Increase your home equity
- No. 4: Organize your financial documentation
- No. 5: Save cash for closing costs
- Shop smart for your refinance
- No. 6: Start online
- No. 7: Decide on a loan term
- No. 8: Talk to multiple lenders
- No. 9: Review all your loan options
- No. 10: Decide how you will finance your refinance
- No. 11: Compare mortgage rates and fees
- 10 tips for getting the best mortgage refinance rate, from checking your credit report to choosing the right lender
- 1. Invest in home improvements
- 2. Make extra mortgage payments
- 3. Wait to refinance
- 4. Make payments on time
- 5. Keep your credit utilization ratio low
- 6. Check your credit report for any errors
- 7. Lower your monthly debt payments
- 8. Consider opportunities to increase income
- 9. Shop around for the best interest rate
- 10. Shop around for low fees
- 4 ways to negotiate for the lowest mortgage rate | Mortgage Rates, Mortgage News and Strategy
- 4 ways to negotiate your mortgage rate
- How to shop for a lower rate
- How to negotiate your mortgage rate with discount points
- A stronger application gives you more negotiating power
- Why you have to shop to negotiate rates
- When you can and can’t negotiate your mortgage rate
- How mortgage rate negotiations used to work
- Realizing the system was “unequal”
- Why the system for negotiating mortgage rates changed
- What are today’s mortgage rates?
- 4 ways to get lower mortgage refinance rates
- 1. Compare rates, closing costs and terms of several mortgage lenders
- 2. Pay down your debts
- 3. Improve your credit score
- 4. Lower your DTI
- What are today’s mortgage rates?
- The bottom line: It’s a great time to refinance
9 Ways to Get the Best Refinance Rates
NOTE: Due to the coronavirus outbreak, refinancing may be a bit of a challenge. Lenders are dealing with high loan demand and staffing issues. If you can’t pay your current home loan, refer to our mortgage assistance resource. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.
With mortgage rates at their lowest in 50 years, you've decided to try and get the absolute best refinance rate of a lifetime. If you want to score a rate for the record books, here are nine things you'll want to do.
1. Look for errors in your credit report
Credit report errors happen more often than you might imagine, says Mary Anne Daly, senior loan advisor for CrossCountry Mortgage in Larkspur, California.
“I ran credit for someone who had a state tax lien and a charge-off,” Daly says. “They said, 'This isn’t mine. I don’t know anything about this.'”
She also remembers clients who had a credit score of 623. Their credit report had mistakes, and the customers wondered if an improvement in their score would be worth the effort of correcting them. By wiping the errors from their history, their credit score improved to 660, and the borrowers saved $95 a month on their home loan.
» MORE: Check your credit score for free
2. Keep credit card balances below 25% of your available credit
Daly says to consider asking your credit card providers to increase your available credit. Using a smaller percentage of your available credit lowers your credit utilization ratio and can earn you a better interest rate.
3. Don't quit using consumer credit
Paying off consumer credit can be liberating, but you should continue making small purchases on your credit cards from time to time. Even if you pay the balances off each month, it shows you manage debt responsibly, which can actually improve your credit score, Daly adds.
» MORE: Should you refinance to pay off debt?
4. Be wary of 'no-cost' loans
“That always tickles me,” Daly says of such loan gimmicks. “There are no free lunches.” All lenders will charge fees, whether they are paid upfront, rolled into the loan balance or built into the loan’s interest rate.
It’s not uncommon for closing costs to be tacked on to a loan. Joe Burke, senior vice president of mortgage lending with Guaranteed Rate in Chicago, says paying refinance closing costs pocket can lower your interest rate.
» MORE: How and why to refinance your mortgage
5. Consider a shorter loan term
Burke notes that expanding your loan term may not be in your best interest.
“If you’ve already paid seven years into a 30-year fixed, for instance, putting you into a new 30-year fixed may not be the best financial decision,” he says.
Moving from a 30-year mortgage to a 20-year or even a 15-year term can earn you a lower mortgage interest rate, not to mention reducing interest payments over the life of the loan.
“Moving to a 20-year or even a 15-year term can lower your mortgage interest rate and reduce interest payments over the life of the loan.”
“A lot of people don’t know that,” Daly adds. She tells of customers who were considering several options on a mortgage. They had 10 years left on their loan, and they thought it wouldn’t make sense to refinance. Daly showed them that refinancing to a 10-year loan term with a lower mortgage rate would save $45,000 in interest, without significantly changing their monthly payments.
“They were just thrilled,” Daly says, “paying a little bit more [each month] but saving all of that money.”
» MORE: 15-year vs. 30-year mortgage calculator
6. Resist the urge to take cash out
A cash-out refinance allows you to draw some of your home’s equity as a part of a new loan. But it also increases your loan-to-value ratio. That will raise your interest rate in most cases, Daly says.
» MORE: Calculate your refinance savings
7. Lock in your best refinance rate
“Sometimes, believe it or not, we have a little bit of a crystal ball” about how mortgage rates may behave in the very short term, Daly says. That can be tied to major economic news, policy announcements or government reports.
After conferring with your loan advisor about an estimated time to closing, ask about a mortgage rate lock, which will prevent rising rates from affecting your mortgage while the loan is being processed — which can take weeks.
8. Consider how long you'll live in the home
“One of the questions that we’re always asking people is, 'How long do you plan on staying in the home?'” Burke says. “I think that’s a very important question that a lot of people don’t ask.”
For example, if you know you are going to be selling your home in five to 10 years, an adjustable rate mortgage, with an introductory rate lower than that of a fixed-rate loan, may be the right choice, Daly adds.
» MORE: Reasons to consider a refinance, even if you bought recently
9. Shop rates — and know what they mean
Shopping more than one lender may be the most powerful way to earn the best refinance rates. Getting just one additional rate quote could save borrowers an average $1,500 over the life of a loan, according to research by Freddie Mac, a government-sponsored entity that helps fund the mortgage market.
Shopping five lenders could save you about $3,000, Freddie Mac says.
“Advertised rates that seem unusually low may have discount points built in, which you would have to pay for upfront.”
But advertised rates that seem unusually low may have discount points built in — that’s when you pay upfront to get a lower interest rate. For the lender, factoring in discount points may be a ploy to drive business, but for borrowers, the points can be a part of a loan strategy.
“Most of the time, we find that the buy-down doesn’t make sense,” Daly says. To see if discount points work in your situation, consider your monthly payment savings against how long it will take to recoup the fees — and how long you expect to stay in a home.
Burke says borrowers often fixate on a low rate but miss important details in loan terms disclosed in the fine print.
“Looking at APR is absolutely one of the best ways to go,” he says. The stated annual percentage rate of a loan includes the interest rate you’ll pay on the loan, plus all fees. You’ll have to complete an application with each lender you’re considering to get all the information that impacts your offered APR.
12 ways to get the lowest mortgage refinance rates
If you're considering refinancing your mortgage, you are ly eager to find the lowest mortgage refinance rates.
But before you start shopping around for the lowest rates, experts say you should establish your objectives and prepare your finances to improve your chances of qualifying for the lowest interest rate.
“First, figure out the best loan product to meet your financial goals, and then you can start looking for the most competitive mortgage rates,” says Michael Jablonski, executive vice president and retail production manager for BB&T Mortgage in Wilson, North Carolina.
Here are 12 steps that will help lock in the lowest refinance rate possible:
No.1: Raise your credit score
“Typically, a credit score of 740 or higher puts borrowers in the best tier for a conventional loan program,” says Michael Smith, first vice president – business development manager for mortgage lending for California Bank and Trust in San Diego.
Most lenders require a minimum credit score of 620 to 640, but you'll pay a higher mortgage rate for conventional loans unless your score is 740 or above. However, some portfolio lenders set their own guidelines, and the FHA program doesn't charge higher interest rates as a credit score declines, so that may be an option to consider.
Paying bills on time and paying down your credit card balance can reduce your debt-to-income ratio, or DTI, which improves your chances of qualifying for a low mortgage rate, says Jablonski.
A good rule of thumb is to make sure your debt-to-income ratio is no more than 36 percent, and even lower is better.
“Don't buy a new car, make other major purchases or fill out multiple credit applications before you refinance, because all of those actions can hurt your credit profile,” says Smith.
Even if you have a high credit score, you may be denied a refinance altogether or subjected to higher interest rates if your DTI ratio is too high, says Jablonski.
No. 3: Increase your home equity
Remember that your credit scores and the loan-to-value ratio of your property could have a much bigger impact on your refinance rate than a slight shift in average mortgage rates, says Malcolm Hollensteiner, director of retail lending sales for TD Bank in Vienna, Virginia.
“Both a lower-than-average credit score and a high loan-to-value can lead to a more expensive interest rate,” he says.
One way to increase your home equity is by doing a “cash-in” refinance. Essentially, you prepay some of your outstanding loan amount, which increases the equity stake you have. This lowers the new loan's Loan-To-Value (LTV) ratio, and a lower LTV can help get you a lower interest rate.
If you are underwater on your mortgage, a Streamline Refinance may be your best option.
No. 4: Organize your financial documentation
You should get your credit reports from all three bureaus to make sure there are no mistakes that need correcting before you apply for a refinance, says Smith.
A refinance application typically requires two years of tax returns with W2s, two recent pay stubs, and your two most recent bank and investment statements.
“Gathering these materials ahead of time can expedite the loan process and prevent you from paying extra for an extension of your rate lock,” says Smith.
Refinancing? Use this document checklist
No. 5: Save cash for closing costs
Closing costs average about 2 percent of the loan amount.
“You can pay cash for the closing costs or, if you have enough equity, you can roll these costs into your new loan,” says Hollensteiner.
“Another option that some lenders offer is to pay a higher interest rate for a lender credit to cover those costs.
” Of course, if you have enough equity to use to cover the costs, a lender may allow you to do a “low cash-out” refinance, where you increase your loan amount just enough to pay any closing costs.
Shop smart for your refinance
Once your preparations are complete, you can begin to shop around for the refinance that works best for you.
No. 6: Start online
Deborah Ames Naylor, executive vice president of Pentagon Federal Credit Union in Alexandria, Virginia, recommends starting online with a refinance calculator that estimates your monthly payments at various loan terms.
“A shorter term loan will have a lower interest rate than a 30-year fixed-rate loan, but the payment will be higher because you're paying it off faster,” says Naylor. “It's important to decide what payment you're comfortable making before you see a lender, because that payment could be much less than the payment you qualify for.”
No. 7: Decide on a loan term
Barry Habib, founder and CEO of MBS Highway in New York City, says the loan term you choose needs to be made in the context of your other financial obligations and plans.
“If you have $30,000 in credit card debt and no savings for college, you may want to go for a 30-year loan to keep the payments as low as possible,” says Habib. “Someone else may want a shorter term to build equity faster while another borrower might want a longer loan so they can keep their tax deduction as long as possible.”
If you are interested in a shorter term but don't want to commit to one to preserve budgetary flexibility, one strategy is to take a new 30-year fixed rate mortgage but then prepay your mortgage to any term you want. You won't get the same interest rate break as taking a shorter term, but you also aren't locked in to covering the higher monthly payment that a shorter term creates.
No. 8: Talk to multiple lenders
Once you’ve decided on your loan term, it’s time to research loan products available from a credit union, a regional or community bank, a direct lender and a national bank to find out what special programs they offer, says Naylor.
If you have fall outside today's lending standards and have special needs, such as a lender that will accept your application with non-traditional income and asset documentation, or if you want a mortgage that allows for interest-only payments, you also might need to contact a mortgage broker to help you locate the financing you need.
“Many lenders offer 'portfolio loans,' ones they keep in-house instead of selling on the secondary market,” she says. “They can be more flexible with those loans and offer special promotions.”
Instead of choosing a lender solely current mortgage rates, Russ Anderson, senior vice president and a centralized sales executive with Bank of America in Los Angeles, says you need to find a lender you can trust. “People get too wrapped up in the rate rather than finding someone who will communicate with them,” he says. “You need to find someone you trust, who will be engaged in your family's financial situation.”
No. 9: Review all your loan options
Lenders can discuss various loan products when you interview them.
“There's a broad product mix of conventional financing, government-backed programs FHA loans and VA streamline refinance programs,” says Anderson. “A good lender can present the pros and cons of each of these programs in the context of your individual finances.”
No. 10: Decide how you will finance your refinance
You’ll also need to decide how to pay for your refinance. Closing costs and lender fees can be paid at closing, wrapped into your loan balance or you can opt for a “no-cost” refinance.
“A no-cost refinance means that your lender will pay the fees and you'll pay a slightly higher interest rate of one-eighth to one-fourth percent,” says Habib.
HSH.com's “Tri-Refi” refinance calculator can help you decide the best way to finance your refinance. Here's how:
We've been asked thousands of times: “Is it better to pay closing costs pocket, finance them into the loan amount, or trade them for a higher interest rate?” There's no one simple answer, since each refinance choice has its own benefits and total costs over time.
One may be more or less expensive depending upon how long you'll hold onto the mortgage. Our unique calculator allows you to run the numbers for a Traditional Refinance, a Low-Cash-Out Refinance and a No-Cost Refinance so you can determine which is best for you.
Fill in the information once and instantly compare the costs and savings.
No. 11: Compare mortgage rates and fees
Advertised mortgage rates are sometimes paying points, so you need to make sure you compare loans with zero points or the same number of points.
“It's important to shop for the same loan on the same day to get a true comparison of mortgage rates, because mortgage rates change every day,” says Smith. “You need to explain to each loan officer all the criteria for your refinance, not just ask 'what's today's rate on a $200,000 loan?' You should also ask about loan processing times.”
Shopping by APR can be confusing, since different lender fees and policies can affect the outcome. It is possible for two loans to have identical rates and fees and different APRs. Conversely, two loans could have the same APR but different interest rates. Because of this, it is usually better for you to focus instead on the two most important components of APR: interest rate and fees.
The most important component of your refinance will generally be the interest rate, so you'll of course want to pay attention to that. Fees and closing costs matter, but whether you want or need to pay them will depend upon your situation. There are times when paying costs to obtain the lowest mortgage refinance rates can make sense and times when it does not.
Once you’ve finalized your loan decision you should consult your lender about when to lock-in your rate.
“Processing times for different lenders can range from 30 to 45 days to more than 90 days,” says Smith. “Typically, lenders will do a 30- or 45-day rate lock, so you should be consulting with your lender to determine the appropriate day to lock your loan.
If you have to extend the lock or re-lock your loan, that will ly cost you more money.
” You'll want to ask your lender about how long it is currently taking to process a refinance similar to yours, and then you have some decisions to make regarding your mortgage rate lock.
While shopping around for a refinance may take a little longer than refinancing with your current lender, the rewards can last as long as your loan.
This article was updated by Keith Gumbinger.
More from HSH.com:
Mortgage amortization calculator
10 tips for getting the best mortgage refinance rate, from checking your credit report to choosing the right lender
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Snagging a lower interest rate can be a great reason to refinance your mortgage, especially if the new rate will be significantly lower.
Although mortgage rates rely on the housing market and economy, you do have some control over your interest rate. Taking a few steps before applying to refinance could land you a better rate.
If you have a good amount of home equity — meaning you owe relatively little on your mortgage compared to how much your home is worth — lenders may reward you with a lower interest rate. Lenders typically want you to have at least 20% equity in your home when you refinance, but even more equity can result in a better rate.
There are two main ways to boost your home equity: Pay off more of your mortgage, or increase the value of your home. Here are some tips for doing both.
1. Invest in home improvements
Remodeling your kitchen, fixing your roof, or investing in fuel-efficient appliances could increase the value of your home.
Home improvements cost money, though, so consider whether fixing up the home to get a better rate will actually save you money.
2. Make extra mortgage payments
Can you afford to pay a little extra toward your mortgage before refinancing? Paying down more will decrease how much you owe on your home.
Before you make extra payments, check with your lender about any prepayment penalties. Lenders don't usually penalize you for making small additional payments, but you could pay a fee if you pay off a huge amount all at once.
3. Wait to refinance
If you aren't in a rush to refinance, consider waiting until you've made a few more monthly payments. Knocking out some debt could build enough equity to land you a better interest rate.
Waiting could also be useful if you think your home might increase in value. Maybe your neighborhood has been improving, or nearby property values are going up. The more your home is worth relative to how much you owe on your mortgage, the better.
However, if you think your home could lose value in coming months, waiting could actually work against you.
When you apply to refinance your mortgage, lenders look at your credit score to assess how trustworthy you are when it comes to repaying loans. The higher your score, the lower your rate should be.
A credit score of 700 should help you out, but the higher, the better. Here are some ways to boost your score.
4. Make payments on time
Credit payments make up 35% of your FICO score. If you've been making late payments here and there on your credit cards or student loans, try to crack down on paying everything on time to beef up your credit score.
Is keeping up with your payment schedule confusing? Try writing down the payment dates for all your debts, then setting up automatic payments online so you don't have to worry about late payments.
5. Keep your credit utilization ratio low
Your credit utilization ratio is the amount of credit used versus the amount of credit available.
Let's say you have one credit card with a $10,000 spending limit and a $3,000 balance, and another credit card with an $8,000 limit and a $2,000 balance.
Added together, you're using $5,000 of the $18,000 available to you, or 27.78%. You credit utilization ratio is 27.78%.
Lenders to see a credit utilization ratio of 30% or less. Try paying down some of your credit debt to lower your ratio. Or consider requesting to increase your spending limit on cards — this way, even if your balances don't change, your ratio will go down. However, don't risk increasing your limit if you think it will tempt you to spend and go into more debt.
6. Check your credit report for any errors
There are three credit reporting agencies: TransUnion, Experian, and Equifax. You can request one free credit report from each agency once per year. Get your credit report from at least one agency and search for any mistakes.
Maybe you've closed a credit card that is still listed on your report, or payments are showing up as late even though you know you've paid on time.
If you find inaccuracies, you can dispute an error with the agency to hopefully improve your score.
Lenders also look at your debt-to-income ratio when determining your interest rate. Your DTI ratio is the amount you pay toward debts each month, divided by your gross monthly income.
Most lenders want to see a DTI ratio of 36% or less, but the lower your ratio, the better your rate will be. Here are tips for decreasing your DTI ratio.
7. Lower your monthly debt payments
There are two possible ways to pay less each month toward debts: Pay off a loan completely, or find a way to lower your minimum monthly payment.
Maybe you only have a few hundred dollars left on a credit card or car loan balance. If possible, consider paying it off in full so your required monthly payments go away completely.
You also might be able to talk with a lender about decreasing your minimum monthly payment toward a loan. You can always call your lender to ask if lowering your payment is an option, but you may have to refinance a student loan or car loan to land a lower payment.
Just as with your mortgage refinance, be sure to understand the terms of refinancing a loan beforehand to decide if it's the best financial move.
8. Consider opportunities to increase income
“Earn more money” is easier said than done, but it is one way to lower your DTI ratio. And holding a garage sale or another one-time money-earning event won't do the trick, because lenders look at your monthly income to calculate your DTI ratio.
If you think you're in line for a raise at work, now could be the time to skillfully approach your boss about it. You could also pick up a part-time or freelance gig.
If your finances are strong, you could invest in a rental property to earn income from renters.
You might decide to refinance with the same lender that gave you your initial mortgage, but you shouldn't choose the same lender by default. You may find another company that offers you a better deal this time around.
9. Shop around for the best interest rate
Find out which lender will offer you the lowest interest rate your home equity, credit score, and debt-to-income ratio.
Related The best mortgage refinance lenders of December 2020
Some online lenders, such as Ally and Better.com, provide personalized rates with their own digital calculators. You may ask your bank if it offers discounted mortgage rates to personal banking customers. If you have a few lenders in mind, you could call representatives to receive rate estimates.
10. Shop around for low fees
Once you've narrowed your list down to a few lenders offering good rates, find out how much each will charge in refinancing fees. Request an itemized list of fees to compare and contrast each company.
Getting your finances in order and choosing the best lender can help you land the lowest refinance rate possible — and hopefully save thousands of dollars in the long run.
4 ways to negotiate for the lowest mortgage rate | Mortgage Rates, Mortgage News and Strategy
Shopping around gives you the ammo you need to negotiate a lower mortgage rate.
Buyers save $1,500 by getting just one extra quote, and $3,000 for five quotes on average.
Surprisingly, though, many home buyers and refinancers skip the shopping part. About half go with the first lender they talk to.
As a consumer, you should exercise your power to get multiple rates and ask for the best deal.
Not negotiating mortgage rates means you’re leaving money on the table.
Shop for a low mortgage rate (Mar 25th, 2021)
In this article:
4 ways to negotiate your mortgage rate
Many people aren’t aware they can negotiate their mortgage or refinance rate. Actually, it’s totally possible. But it’s not as simple as haggling over percentage points.
To negotiate your mortgage rate, you’ll have to prove that you’re a credit-worthy borrower. And you’ll have better luck if you come to the table with a lower quote from another lender in-hand.
Here are four strategies you can use to try to get a lower rate before you lock:
- Shop around with multiple lenders
- Ask your lender to match a lower rate offer
- Negotiate with discount points
- Strengthen your mortgage application
We cover each strategy in more detail below.
But the basic facts are: If you have strong financials, and you’re willing to look at more than one lender, you can usually find a lower rate for your mortgage.
Find low rates from major lenders now (Mar 25th, 2021)
How to shop for a lower rate
The best thing you can do to get a low mortgage rate is shop around. You’ll get a unique rate quote from every lender. Compare the interest rate, closing costs, and points included in these estimates. You’ll see which lender actually has the most competitive costs over the life of a 30-year mortgage.
Remember: The company with the lowest upfront mortgage rate might not actually be the “cheapest” company once points, fees, and closing costs are tallied up.
The company with the lowest upfront mortgage rate might not actually be the “cheapest” company once points, fees, and closing costs are tallied up.
Lenders do have some flexibility with the rates they offer you. So if you prefer one lender — maybe because you know the loan officer personally, or have a branch nearby — don’t be afraid to bring them a lower estimate and see if they can match it.
In some cases, the company you want to work with will be able to lower your rate to compete with other loan estimates. Other times it won’t — but it never hurts to ask.
How to negotiate your mortgage rate with discount points
You also have the option to buy “discount points” with most lenders.
Discount points let you pay a little more up front for a lower mortgage rate over the life of the loan. Typically, one discount point costs 1% of the total loan amount, and lowers your rate by about 0.25%.
|With NO discount points||With ONE discount point|
|Cost to purchase discount point||$0||$2,500|
|Interest paid over 30 years*||$133,446||$123,315|
*Loan assumptions: $250,000 home price purchased in the state of Washington with 20% down. Rates and interest payments shown are for sample purposes only. Your own rate and payments will vary.
In this scenario, purchasing one point costs $2,500 at the closing table. But it would save the homeowner more than $10,000 over the life of their loan.
Verify your new rate (Mar 25th, 2021)
A stronger application gives you more negotiating power
This strategy might not be as helpful if you’re close to closing on a mortgage loan. But if you have a little more time before you lock, consider that a stronger application gives you a lot more leverage to negotiate your mortgage rate.
Basically, the better your financials look, the more lenders want your business. And the more they’re willing to negotiate to get it.
That could mean trying for:
- A higher credit score — Take steps to raise your score before you apply
- A bigger down payment — A larger down payment often leads to a lower mortgage rate. You’ll save even more if you can put 20% down and avoid mortgage insurance
- Lower monthly debts — Paying off some debt before you apply leads to a lower debt-to-income ratio (DTI), and often a lower mortgage rate
Of course, raising your credit score, saving for a down payment, or paying off debts all take time.
But if you can wait a little while — or, if your rates looked worse than you thought and you want to make a change before trying again — these are good ways to score a significantly lower mortgage rate.
Why you have to shop to negotiate rates
Mortgages are a lot more regulated than they used to be. As a result, individual loan officers have less flexibility to change rates from customer to customer.
That’s why we talk about tactics comparing loan estimates and purchasing discount points to lower your rate — rather than trying to bargain with your loan officer.
In today’s market, some lenders are more efficient than others. They lower operating costs by using online applications and digital processing. And those overhead savings often get passed on to customers.
>> Related: The 9 best online mortgage lenders
Other lenders do such high volume that they can afford to charge lower rates and fees, and still turn a profit.
And most every lender has some sort of niche. Some mortgage companies are friendlier toward low-income or low-credit borrowers, some are better for self-employed people, some have jumbo loans for multi-million dollar homes, and so on.
So, shopping around doesn’t just give you ammo for negotiating a lower mortgage rate.
It also helps you pinpoint mortgage lenders that specialize in the type of loan you need. And that lender will be more ly to give you a competitive rate, regardless.
When you can and can’t negotiate your mortgage rate
In many cases, a lender can’t give you a better deal than they give another similar borrower. That would be considered discriminating against the other borrower.
However, there is some room for negotiation.
For example, lenders are allowed to credit closing costs to a borrower when delays result in a blown rate lock, or when it’s necessary to be competitive if rates suddenly fall.
The big caveat, though, is that the loan officer’s commissionable income must not be affected by the negotiations.
A successful mortgage rate negotiation reduces income to the lender, therefore, but never to the loan officer. This keeps the loan officer’s interest aligned with the customer’s, and this is good.
For customers looking for the best possible mortgage rate, then, it’s always good to ask.
Lenders have less flexibility to change rates or fees, but there are situations when it’s possible — especially when unforeseen events increase your loan closing costs.
How mortgage rate negotiations used to work
A mortgage loan officer or mortgage broker acts as a go-between. They connect you, the consumer, with the lender or investor putting up the money for your home loan.
Brokers work independently, functioning as the sales force for wholesale mortgage lenders. Loan officers are the sales force for the lender that employs them.
Loan officers and mortgage brokers typically work for commissions. And of course, they want to maximize this income. No one wants to work for free.
In the past, there were only three ways for lending professionals to increase their commissions:
- Increase the interest rate
- Increase the closing costs
- Increase the loan amount
This is where the idea of “shopping around” for a mortgage first came from. There was always a chance that at least one loan officer would be willing to work for a smaller commission, which would get you a better deal.
Realizing the system was “unequal”
Loan officers are salespeople and, under the old system of mortgage lending, each had incentive to offer customers the highest mortgage rates possible in order to maximize bank revenues and their own personal commission.
Of course, borrowers were free to check with other lenders to see if they could do better. Just you can shop for deals when you buy a car.
But a closer analysis of this practice revealed that all customers were not treated equally.
Some customers received very high mortgage rates, and some received very low mortgage rates. Sometimes, loan officers willingly reduced closing costs, and other times they did not. It depended on their individual style of operating.
Mortgage rates sometimes varied by as much as 50 basis points (0.5%) between borrowers of similar traits and characteristics, at the same lender. And it was much easier for discrimination to creep into the process.
Why the system for negotiating mortgage rates changed
Charging different fees to similar customers is a potential mortgage lending law violation. And, ultimately, the government levied fines on a lot of U.S. banks for their “disparate treatment” of customers.
In response, banks stopped the negotiation process.
Loan officers were to receive the exact same commission regardless of what mortgage rate or fees they charged to their customers.
Under the new rule, loan officers had no reason to raise mortgage rates for higher fees; or, to charge more points on a particularly “tough” loan. All loans were worth the same.
If you called your lender and tried to negotiate a lower rate sometime between 2010 and 2014, you would have found it unly.
Mortgage lenders didn’t negotiate when it could result in unfair treatment. Your rate was your rate, regardless of what competing lenders offered you.
That’s why today, you generally have to shop around and compare lenders to find the lowest rate.
Lenders might have some wiggle room. But you’re a lot more ly to have a successful negotiation if you can show that another lender offered you a lower rate for the same application. That gives you real leverage.
What are today’s mortgage rates?
Today’s mortgage rates are low, but may be cheaper at some banks than others. It’s always good to shop around to find the lowest rate possible.
We recommend comparing rates from at least 3-4 lenders to find your lowest offer.
Verify your new rate (Mar 25th, 2021)
4 ways to get lower mortgage refinance rates
Mortgage rates have dropped to record-breaking lows amid the coronavirus pandemic, creating a massive opportunity for existing homeowners — especially ones who are struggling financially.
With a loan refinance, many homeowners stand to save hundreds per month (and tens of thousands in the long run) and lower their monthly mortgage payment by taking advantage of today's lower rates. Refinancing your mortgage can also lighten the load for those who have lost their jobs, had their hours cut, or just faced financial hardship since the pandemic emerged.
Are you considering saving money by refinancing your mortgage loan? Start by exploring your refinance options with a tool Credible. You can compare rates and lenders with one click.
Follow the below tips to ensure you get the best mortgage and refinance rates possible.
Not everyone will qualify for the market’s lower rates, so you may need to put in some work to ensure you get the best deal. Here are four ways you can increase your chances of getting a bargain-basement rate (and save the most cash):
- Compare rates, closing costs and terms of several mortgage lenders
- Pay down your debts
- Improve your credit score
- Lower your DTI
1. Compare rates, closing costs and terms of several mortgage lenders
Rates, terms, and fees vary widely from one mortgage lender to the next, so comparing several options is critical. In fact, according to Freddie Mac, getting at least five quotes can save you a whopping $5,000 in the long run.
While contacting each lender individually is an option, using a rate-shopping tool Credible can streamline this process and compare rates and multiple offers at once. It's 100% free — and doesn't impact your credit score, so you can determine if it's time to refinance with ease.
HOW DOES REFINANCING YOUR MORTGAGE AFFECT YOUR CREDIT SCORE?
2. Pay down your debts
The less debt you’re dealing with, the more cash you have on hand to handle your mortgage payment, closing costs, and every other cost that comes with a refinance. It also means you’re less of a risk to the lender. And lower risk? That warrants lower rates.
HOW TO PAY OFF DEBT FAST
3. Improve your credit score
The best mortgage loan rates are reserved for those with the best credit scores — think 760 and above. If saving money is your goal, you're going to want to make sure you fit the criteria.
If you're confident in your credit score, then plug in some of your information into Credible's free online tool to find out what kind of mortgage and refinance rates you qualify for.
If your credit score is on the cusp, consider taking the time to boost it before applying for your refinance. Follow these tips to raise your credit score and meet your financial goals:
- Pay off some debts
- Report any errors on your credit report
- Ask for a credit line increase (but don’t use it)
- Settle any overdue accounts
Be sure not to take out any new debts, either. This will only hurt your score — and your chances at a low mortgage refinance rate.
WHAT CREDIT SCORE DO YOU NEED TO BUY A HOUSE?
4. Lower your DTI
Your debt-to-income ratio — or how much of your monthly take-home pay your debts account for — plays a big role in your mortgage offers. It determines what loan products you’re eligible for, as well as what rates you get.
To improve your shot at getting a great refinance deal, make an effort to lower your DTI however possible. Paying down your debts is one way to do this, as is increasing your income. You might consider taking on a side gig, doing some freelancing, or even asking for a raise from your boss. The higher your income is, the lower that DTI will drop.
If you’re a homeowner, compare mortgage and refinance rates with Credible to see if you can save, but don’t forget about closing costs, which could neutralize any savings you gain from a lower monthly mortgage payment.
MORTGAGE REFINANCES ARE BOOMING — HERE'S WHY YOU SHOULD APPLY NOW
What are today’s mortgage rates?
Today’s mortgage rates are at historic lows, hovering under 3% since at least July. As of mid-October, the average rate on a 30-year, fixed-rate loan is just 2.625%, according to Freddie Mac.
the current mortgage and refinance rates, it may be a good time for you to refinance. To see how much you could save on monthly payments today, crunch the numbers and compare loan rates and mortgage lenders using this free online tool.
WHY IT'S A GOOD IDEA TO REFINANCE YOUR MORTGAGE WHILE RATES ARE LOW
The low rates stem from the Federal Reserve’s stimulus efforts, which are aimed at keeping money flowing into the U.S. housing market and the overall economy. The bank has announced it will keep the Federal funds rate low — near zero, actually, and that it will continue aggressively buying mortgage-backed securities for the foreseeable future.
Because of this, experts largely expect rates to stay low through at least 2021.
The bottom line: It’s a great time to refinance
If you're thinking now is the time to refinance, you're probably right.
Mortgage and refinance rates are so low that homeowners with just one-year-old loans can save big through refinancing. If you’re considering a mortgage refi, make sure to prep your finances, and always compare quotes from several lenders before moving forward.
To get started, head to Credible and get multiple mortgage offers with just one form.
HOW TO LAND THE BEST MORTGAGE AND REFINANCE RATES