Negotiating a better mortgage rate for your home

Gina Pogol
The Mortgage Reports contributor

To negotiate, first you have to shop

Finding a mortgage with a fair interest rate and good terms is much easier today than it was before the Great Recession and mortgage reform.

Better disclosures and stiffer regulations have shifted the power to consumers.

Surprisingly, though, many home buyers and refinance candidates skip the “shopping” part. About half go with the first lender they talk to, according to a Freddie Mac study.

The same study revealed that consumers save about $3,000 over the life of their mortgage by getting five quotes rather than just one.

As a consumer, you should exercise the power afforded you by new regulations and new technology that makes shopping easier.

Shop multiple lenders now by clicking here. (Nov 14th, 2019)

The old way to negotiate your mortgage rate

Mortgage loan officers and mortgage brokers both act as go-betweens between you, the consumer, and the lender or investor putting up the money.

Brokers work independently, functioning as the sales force for wholesale mortgage lenders. Loan officers are the sales force for the lender that employs them.

Study: Consumers refuse to shop for rates

Loan officers and mortgage brokers typically work for commissions. of course, they want to maximize this income. No one wants to work for free.

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 why consumers are told to “shop around” when looking for a loan.

There might always be at least one loan officer willing to work for a smaller commission, which would get you a better deal.

Realizing the system was “unequal”

Loan officers are salespersons 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.

MBS: What REALLY determines your mortgage rate?

Borrowers, on the other hand, were free to check with other lenders to see if they could do better. just like you can when you buy a car.

A closer analysis of this practice, however, revealed that customers were not treated equally.

Same lender, different offers

Some customers received very high mortgage rates and some customers received very low mortgage rates. Sometimes, loan officers willingly reduced loan closing costs, and other times they did not. It depended on their individual style of operating.

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Mortgage rates sometimes varied by as much as 50 basis points (0.50 percent) between borrowers of similar traits and characteristics, at the same lender.

Lenders put the brakes on negotiation

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 customer.

What to look for in a mortgage company

Now, 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 had called your lender and tried to negotiate a lower rate sometime between 2010 and 2014, you would have found it unlikely.

Mortgage lenders didn’t negotiate when it could result in unfair treatment. Your rate was your rate was your rate.

Verify your new rate (Nov 14th, 2019)

The new way to negotiate your mortgage rate

For today’s mortgage borrower, it still makes sense to shop around. The rate you get from Bank A may not be the rate you get from Bank B.

Some lenders are more efficient than others, and are able to pass on their lower costs to their customers. others do higher volume and can afford to make less per loan, because they do so many.

The 10 factors that determine your mortgage rate, and what to do about them

So it makes sense to get several quotes from competing mortgage lenders. in most cases, though, an individual lender can’t give you a better deal than they give another similar borrower, because that would be discriminating against that borrower.

What you can and can’t negotiate

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.

What is a rate lock?

The big caveat, though, is that the loan officer’s commissionable income must not be affected by the negotiation.

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.

What are today’s mortgage rates?

Mortgage rates are cheap, but may be cheaper at some banks than others. It’s always good to shop around to find the lowest rate possible.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Nov 14th, 2019)