How to Negotiate a Mortgage With the Bank

Secure a low interest rate and closing costs by negotiating a mortgage.

Some homeowners make the mistake of believing mortgage terms are set in stone. Shopping and negotiating for the best interest rate and terms ensure the borrower lands the best financing deal, according to the Federal Reserve Board. When shopping for a loan, a borrower should negotiate interest rates and closing costs.

Instructions

1. Compare mortgage rates from several different financial institutions, recommends the Federal Reserve. Commercial banks, credit unions and mortgage lenders offer mortgages. Search rates for all of these lenders through online comparison tools (see Resources).

2. Request cost information. Ask for an itemized list of closing costs from each lender. Identify the lender who offers the lowest closing costs. Also, ask lenders about extra fees, such as pre-payment penalties. With this fee, the borrower is charged a flat fee if the loan is paid off early. This makes it expensive to refinance in the future.

3. Negotiate with lenders. Borrowers who are refinancing should talk with their existing lender first. Ask the lender to match the lowest interest rate and closing costs you found. Borrowers purchasing a new home should select the lender with the lowest interest rate and negotiate closing costs. Closing costs that aren’t outsourced, such as application fees and processing fees, are the most negotiable.

4. Request a written lock-in form. The Federal Reserve recommends requesting a formal lock-in form with details the terms of the loan to ensure your low rate won't change. This form should include the agreed interest rate and points paid (if any). It should also include the lock-in expiration date. For example, the lender may offer an interest rate for 30 days. If the borrower doesn’t take advantage of the interest rate by this time, the offer will expire.

Tips & Warnings

• Ask the lender if the rate includes purchasing points. Purchasing points lowers the interest rate; however, there is a fee for this service. Borrowers who aren’t moving soon may benefit from these offers. Homeowners planning on moving in the near future may not recover the costs.

• When negotiating mortgage terms, make sure the lender isn’t lowering one rate and increasing another. For example, perhaps the lender has lowered the interest rate, but closing costs or other fees have increased.

References

• Federal Reserve: Looking for the Best Mortgage
• Bankrate.com: How to Negotiate your Closing Costs

Resources

• Bankrate: Find Interest Rates