How to Negotiate Your Mortgage Rate

Shopping around is an essential first step.

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When it comes to shopping for a mortgage, consumers seem to be most interested in obtaining the lowest mortgage rate. But it's important to note that a mortgage rate is only as good as the associated costs and terms. In other words, be sure to focus on the closing costs, which can drive up the actual interest rate (APR), along with the terms of the loan, which can lead to more money paid out in interest.

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Shop Around Those issues aside, it's imperative that you shop around to ensure you receive the best mortgage rate, instead of just calling up your local bank. You'd be surprised at how many Americans obtain just a single mortgage quote. Would you do the same when searching for a airplane ticket or a new car? It's doubtful. Without multiple offers, it'll be that much more difficult to negotiate your mortgage rate.

So be sure to speak with several local banks and credit unions, along with a mortgage broker or two, who can shop your rate with multiple lenders on your behalf. Once you've got several rate quotes in hand, you can compare closing costs and associated terms, and use them against each other until someone offers you a better rate. Also, be sure to comparison shop for homeowner's insurance and title insurance, both of which are usually recommended by the bank, lender, or real estate agent. Don't just take someone else's word for it that it's the best deal around—get proof.

Mortgage Rates Are Always Negotiable A mortgage rate is always negotiable; it's just a matter of convincing the bank, broker, or lender to take less commission. Don't let anyone tell you otherwise. If you're a strong borrower, meaning you've got good credit, plenty of assets, and the ability to document income, you'll have much more leverage.

Conversely, if your credit is shot and you have next to nothing in assets, it'll be more difficult to obtain multiple quotes and pit lenders against one another. Credit score and loan to value ratios are probably the most important factors in determining your mortgage rate. Either way, know that a mortgage rate quote is just a quote until it's actually locked, meaning you have a written confirmation from the bank that it's official.

Television Ads Assume You're an A-plus Borrower Those ads on TV assume you've got excellent credit and at least a 20 percent down payment—your rate will rise significantly if your credit is sub-par and you can only rustle up 5 percent for a down payment.

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Ask what the mortgage rate pricing adjustments are on your loan. Mortgages are different, so have the loan officer or broker go through every fee with you so you know exactly how they came up with your rate. And empower yourself by learning the mortgage jargon (hello mortgage dictionary) before you apply, that way you'll put a little fear into the issuing bank, reducing the chances of them attempting to rip you off. That said, be sure to prepare yourself long before even shopping for a mortgage to increase your odds of receiving the best rate possible.

Colin Robertson is the author of several finance websites aimed at helping consumers save money, including The Truth About Mortgage and The Truth About Credit Cards, which includes his popular credit score range.