Are Mortgage Interest Rates Negotiable With a Bank?

Negotiate with your lender and put interest rates and other fees on the chopping block.

Negotiate with your lender and put interest rates and other fees on the chopping block.

If you’re a good negotiator, you can try to beat down the price of just about anything. Mortgage interest rates are no exception. Come to the negotiation table armed with good credit and demonstrate to the lender that you know what the competition has to offer. You may walk away with a lower rate or with reduced fees that save you thousands of dollars.

What Lenders Want to See

If you want to stand a chance at negotiating an interest rate, you’ll need to be considered a good credit risk. Generally, banks don’t want to see monthly housing expenses that exceed 28 percent of your pretax income, including the mortgage payment, homeowners insurance, property taxes and any condominium or homeowner association fees. They also want you to plunk down a big down payment. As part of the application process, you’ll need to prove your income and ability to pay and should demonstrate a good credit history. The higher your credit score, the more likely you are to secure the lowest interest rates and the stronger your negotiating power will be.

Start With Your Current Bank

You might have luck with your current bank if you have already been a good customer there. The bank will want to keep your current business, and the mortgage department might be willing to negotiate with you. This holds particularly true if you are negotiating interest rates on a refinanced loan. While a bank doesn’t want to lose a checking account customer, it really doesn’t want to lose a borrower. If you have made all your past payments on time, you’ll have some bargaining power. You might not be able to negotiate terms lower than currently published loan rates, but if you threaten to take your loan elsewhere, the bank might modify your existing loan.

Play Hardball

Some lenders will not negotiate interest rates at all. They will tell you up front if this is the case. If they do seem open to negotiation, you should prepare to take the upper hand. If one bank already offers the lowest interest rates in town, you’ll have a tough time trying to get it to go lower. But if you come to the table with loan rate tables from competitors, your position will be stronger, and you might successfully bargain for a better rate. Verify existing rates at competitors, and bring printouts of rate sheets with you to your meeting. Rates change frequently, even daily, so make sure you present competitor's rates from the same day.

Other Costs to Negotiate

Debt expert Andy Feinberg stresses negotiating points in his book “Downsize Your Debt.” He reminds borrowers that even if they can’t get the bank to reduce the interest rate, they might successfully reduce other fees. On the negotiating -- and chopping -- block are costs such as attorney’s fees, document preparation fees and points. When the lender presents you with the good-faith estimate of closing costs, ask for an explanation of each fee. Test the waters to see whether there is a willingness to cut down, or even eliminate, some of those costs.

About the Author

Annabella Gualdoni has written newsletters and reports for corporations and nonprofits since 1994. She is a real estate professional and also teaches subjects including international cooking and travel, dating/relationships and personal finance. Gualdoni has a Bachelor of Arts in international development from University of California, Berkeley, a Master of Arts in international relations from Boston University, and a Juris Doctor from Boston College Law School.

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