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How to Negotiate Your Mortgage Rate
Your new house is a large investment, and finding the right lender is a large financial decision. Every percentage point in your mortgage rate matters. It changes both your monthly payment and your total costs. Before you sign a loan agreement, make sure you have the tools to effectively negotiate the mortgage rate and related fees.
How do mortgage rates impact your monthly payment?
Monthly mortgage payments have two major components: the principal and the interest. Some organizations may add in home insurance and monthly estimated taxes so the total payment is a single lump sum, but the core mortgage payment is predominantly made of an interest payment on the loan.
A $100,000 mortgage at a 4% interest rate, for example, will give you a monthly payment of $477.42. During the first month, $144.09 of that payment is the principal. The other $333.33 is the interest payment. If your interest rate goes up to 4.25%, three things happen:
- Your total monthly mortgage payment increases by nearly $15. You’re now paying $491.94 a month.
- The proportion of principal you pay off in the loan starts off smaller. Even though the monthly bill is higher, only $137.77 from that first month is going towards paying the money back.
- You’re paying more in interest. Over the total life of the loan, you will pay $5,211.70 more because of that 0.25% increase.
Even a small difference in your mortgage rate can have large financial ramifications. That’s why it’s so important to find a mortgage institution who will work with you and give you the best rate possible.
Can you negotiate your mortgage rate?
Like with any large purchase or loan agreement, the numbers are negotiable, but it’s important to recognize the different factors that make loan institutions choose certain rates:
- Securing the loan: Depending on your credit history and income, the loan institution is prompted by data to offer you a certain rate. Risky loans, for example, have higher interest rates so the lender can recoup potential losses, but a loan that looks safer often has a lower interest rate attached to it.
- Anti-discrimination measures: Before financial institutions had standard oversight measures, loan officers were free to offer rates as high or as low as the bank could support. In order to keep things fair, loan institutions are now required to give similar borrowers similar mortgage rate offers.
However, there is a lot of room left for negotiation. Here’s how to make sure you’re getting a rate you think is fair:
Get quotes from competing lenders.
The Internet is making this easier than ever. You can use the calculators and quote tools available on most lenders’ sites to get a rough idea of the mortgage rate the institutions will offer. Once you have that knowledge, you can walk in ready to argue down the decimal point.
Ask if you can be credited the closing costs.
Mortgage rates aren’t just decided by your information. The housing market also impacts the percentage. If the rates are turbulent, or the process has had a few delays, ask the mortgage broker if the closing costs of the loan process can be credited to your loan.
Find a mortgage lender who is willing to work with you. While they may not be able to significantly lower their mortgage rate offer, just asking what can be done to lower the percentage can help. A slightly higher down payment, for example, could put your loan amount on a different tier with lower interest rates.
What other costs can you negotiate when you’re buying or refinancing a house?
Mortgage rates aren’t the only factor in the total cost of your house. The loan options matter just as much. Traditionally, you might choose between a 15 year fixed rate or a 30 year fixed rate mortgage loan. A shorter mortgage means you’re paying less interest overall, but your monthly payments will be higher. There are other loan options that you and your home loan specialist can examine, too, such as FHA, VA, and Jumbo loans.
You can also negotiate your required down payment. Many mortgage brokers prefer a twenty percent down payment, especially for first-time homebuyers, but if you can establish your good credit, you may be able to negotiate down your down payment without triggering home mortgage insurance requirements.
No matter what mortgage rate you’re looking for or type of loan you want, it’s important to work with a mortgage company that has your back. If you want to receive an offer with a breakdown of your expected costs, contact us today at Integrity Mortgage & Financial, Inc.