How to Negotiate with Mortgage Lenders

When it comes to mortgages, every borrower wants the same things, the best possible rate and a monthly payment that won’t break the bank.

After all, your mortgage is likely to be the largest debt that you’ll take on in your life. Why pay a mini-fortune in interest when you can get a better deal?

Much like searching for the perfect home, negotiating a good deal with your lender isn’t always a straightforward process. Take these five steps to increase your chances of getting the best mortgage interest rate possible.

Be a loyal customer

Loyalty matters.

If you're negotiating with the bank you've been with for a while, and you’ve paid your credit card bills on time over a period of 12 to 24 months, use your history with your bank as leverage.

Banks are in the business of making money and an important part of this is retaining clients. Don’t be shy about researching other lenders and letting your bank or credit union know if they’re offering lower mortgage interest rates.

Mortgage lenders hate to lose clients, especially clients who pay their bills regularly. They’ll fight a little harder to keep you and may even make concessions in the mortgage terms they offer.

Being a loyal customer carries the additional benefit of improving your credit score. If your credit score is good, your lender knows you won’t have difficulty finding another bank if you fail to reach an agreement.

Get a better offer from a different mortgage lender

It’s one thing to tell your lender that you can get a better deal elsewhere, but it’s another thing entirely to prove it.

If you can bring an official offer from another mortgage lender that promises better terms, your lender may attempt to at least match the offer.

This is a good strategy to use if you’re trying to restructure your current loan. Faced with the option of either agreeing (at least in part) to the terms of your restructure or losing you as a customer altogether, most lenders will simply take your deal or at least make a counter offer that’s closer to what you want.

Before you approach your lender, shop around for better deals with other loan providers.

Pay attention to important details, such as closing rates and offered terms. Once you have offers in hand that are better than those you currently have, approach your current bank to discuss your options.

Be prepared

Certain elements of a mortgage are non negotiable, so there’s no point wasting your energy or your lender’s time trying to haggle.

Besides, your goal is to seem mortgage savvy, not clueless, so make sure you understand the options. For example, bank fees can sometimes be negotiated.

Many lending companies add certain charges to your bill under a section tagged “loan origination fees.” You can request that the company absorb some or all of this cost, a much easier way to save money than trying to negotiate mortgage interest rates.

Keep an eye on the market

There are better and worse times to try negotiating with your mortgage lender.

If interest rates are high, it’s best to wait until they drop before securing a home mortgage, if you can. No matter how great your credit score is, you’ll find it harder to negotiate low rates if the market is simply not in your favor.

Watch market trends, and see if the rates are going up or down. Read financial forecasts and know the climate. Timing is important.

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Keep your loan-to-value ratio (LVR) low

One of the biggest factors that lenders use in determining your interest rate is the loan-to-value ratio, the percentage of the home’s value needed by the borrower to purchase the home.

For instance, if you want to buy a property valued at $100,000 and you need a loan of $90,000, your loan to value ratio would be 90 percent.

Lenders typically prefer that the loan-to-value ratio be under 80 percent.

Anything more, and you’ll be required to cover the additional cost of private mortgage insurance. If you can increase the size of your down payment, offering your lender a lower LVR, you’ll have more leverage as a less risky prospect.

This shows you’re willing to take on more of the burden of the debt, and that you’re more likely to pay regularly to keep your investment intact.

Don’t be afraid to negotiate with your lender on the terms of your mortgage no matter what type it may be—VA loan, 15 year mortgage or 30 year mortgage. Your request may be turned down, but the only way you’ll know for sure is if you ask. You can improve your odds of negotiating successfully by starting from a position of strength.

By following the tips above, you’ll put yourself in the best possible position to wind up with a mortgage that suits your needs and financial means.