How to Customize Your Mortgage
An increasing number of borrowers are looking for opportunities to customize their mortgage interest rates or modify their current loans. Although many lenders have tightened up their lending restrictions, there are ways to customize your mortgage. For many homeowners, their mortgage payment can take up to 50 percent of their net monthly income. They could be saving thousands of dollars by negotiating with their lenders for a lower interest rate. Contrary to popular belief, mortgage rates are negotiable.
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Instructions
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Negotiating
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Compare rates among lenders. Get rate quotes from a minimum of three different lenders. You may be able to use another lender's rate quote to negotiate down the interest rate being offered by the lender you prefer to do business with, or you may be able to negotiate down mortgage settlement fees.
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Buy some points. One way to customize your mortgage interest rate is to purchase "points," which are fees that get paid at the closing of your loan. Each point costs one percent of the total mortgage amount, and each point purchased will lower your interest rate by a quarter of a percentage point. Points fees are costly, and this is only recommended if you plan to stay in your home for five years or more.
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Select the payment term you want. Most lenders will quote you a fixed 30-year term interest rate, which is often higher. In contrast, a 15-year fixed-rate loan can often knock off a whole percentage point or more, and your loan will be paid off sooner.
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Choose a variable-rate mortgage. You may be able to save thousands of dollars in interest expenses during the first few years with a low initial rate. Make sure a cap on the interest rate is included in your mortgage contract for when the interest rate adjusts down the road.
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Negotiate with your lender. Loan officers may like to appear as though their hands are tied, but they have the power to negotiate on most loans. Do not settle for the first figures thrown at you, and remember your goal is to customize your mortgage to get the best deal available.
Modifying
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Contact your lender and ask for a loan modification. You may be able to pay your lender a few hundred dollars to get a reduced interest rate on your existing loan, and the terms of the loan will not change. Be aware that most loans cannot be modified, since many long-term mortgages get sold by lenders as mortgage-backed securities for investors; therefore, the interest rate on these mortgages cannot be changed, but it is worth a try.
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Ask your lender for a streamlined refinancing. You still pay fees just as you would with a traditional refinancing, but the lender may forgo an appraisal, which can cost upward of $400 alone. Generally, a streamlined refinance requires less paperwork, and an automated valuation is done in place of a full-blown appraisal.
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Call your loan servicer's customer service number and ask if there are currently any deals being offered to existing customers. Your current lender may be willing to negotiate to keep your business.
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