How to Negotiate Low Mortgage Interest Rates

Buying a home is one of the most important financial decisions in your life. Unless you already have all the cash, it is very likely that you have to get a mortgage loan. Prepare to fight for the lowest interest rate. Every tenth of a point may be worth thousands of dollars.

Difficulty:

Challenging

Instructions

1. Improve your credit score by paying bills on time and paying off your debts. Lenders will use your credit score and your debts to assess the risk that you may fail to pay your monthly payment. Do not apply for new credit cards.

2. The larger the down payment is, the lower the interest rate is. Ask your lenders about the cut-off points for the size of the down payment. Sometimes, adding $5,000 or $10,000 may bring your interest rate down by a tenth of a point or more.

3. Work with two or three mortgage brokers or lenders to get the best offer. Remember that brokers get commissions from both the lender and you. Brokers may contact several lenders but they might not tell you which is the best option. Make the brokers vie for your business.

4. Compare the rate quoted to the list of current mortgage interest rates. Make sure that you understand the terms of the loan. If you obtain an adjustable-rate loan, your loan payment may vary quite significantly in future. The loans APR (annual percentage rate) will give you a good idea how much you have to pay every year for the interest rate and the fees associated with the loan.

5. Ask about the costs and fees associated with the loan. Many of them are negotiable. When negotiating, be careful. Brokers are known to reduce one cost but raise another.

6. Lock in the interest rate once you are comfortable with the terms of the loan. Lock-in helps to protect you against potential increase in the interest rate. If the rate goes down while the loan is being processed, talk with your broker and lender about the possibility of getting the lower rate.