How to Ask a Bank to Lower a Mortgage Rate

Ask for a lower rate; it could help you save thousands on a mortgage.

If you are unfamiliar with the mortgage market or financing in general, you may be nervous and confused about the home-loan financing process. This can be dangerous. Savvy consumers understand that all mortgage terms are negotiable, especially when you are working with a mortgage broker. Brokers are usually working entirely on commission, and a large percentage of the mortgage fees are going in their pocket. Therefore, you can negotiate, since these fees are not mandated by a larger corporation. Since the mortgage rate will determine the amount you must pay each month, you should know how to approach the subject of dropping a rate. Fortunately this is relatively simple.

Things You'll Need

• Mortgage documents (e.g., mortgage note and mortgage statement)
• Income documents (e.g., W-2s and pay stubs)
• Credit report

Instructions

1. Pull a copy of your credit report. Visit Annual Credit Report (see Resources) to get a free copy. Also, pay for your FICO score. This will give you a full perspective on your credit standing. Excellent FICO scores are those above 720; poor scores are below 600.

2. Calculate your debt-to-income ratio (DIR). This is the calculation mortgage lenders use to determine your ability to repay a mortgage loan. To find your DIR, divide the sum of all monthly bills (that appear on your credit report) by your total gross income. Multiply this result by 100. Excellent DIRs are below 40 percent.

3. Circle all positive aspects of your credit report. This includes positive payment history on all accounts, but especially on secured loans, a lack of public records or bankruptcies and long credit history.

4. Collect several loan offers before approaching any individual loan officer about a lower rate. The best tool you have to negotiate is leverage. The more options you can present to a loan officer, the more she will fight for your business.

5. Bring your credit report (notated) and income documents in for a meeting with your loan officers. Present the positive attributes that you found. Gently remind all loan officers that you have the standing to choose to finance elsewhere. Ask for at least a 1-percent rate reduction.

Tips & Warnings

• Ask to purchase a lower rate if the mortgage lender stands firm on the offered rate. Discount points are fees you can pay to lower your mortgage rate. For example, to lower a 6-percent rate to a 5-percent rate on a $100,000 mortgage, you will have to pay $1,000 (one "point").

References

• Bankrate: 8 Must-Ask Mortgage and Refi Questions
• The Federal Reserve Board: Looking for the Best Mortgage
• Housing and Urban Development: Common Questions from First-Time Homebuyers

Resources

• Annual Credit Report