Can You Negotiate Your Mortgage Rate?

The mortgage lending industry can seem like a maze of lenders, interest rates, and hidden costs. But knowing which costs can be negotiated and which are firm, as well as how and when to negotiate those costs, can help you save thousands of dollars on your mortgage.

Whether or not you have a mortgage advisor to help you negotiate certain types of costs, this post can help you to know which costs aren’t set in stone. Let’s get started.

When to Negotiate Your Mortgage Rate

The best way to get a mortgage that fits into your budget and to save thousands of dollars on either interest or closing costs – or maybe even both – is to negotiate your mortgage before you close your loan. So shop around, collect as many Loan Estimates as you can (but all in the same day so you have an apples-to-apples comparison), and compare their costs.

When comparing mortgage estimates, you want to look at the total cost of your loan, not just the interest rates. That means comparing the annual percentage rate (APR) instead of just the interest rate percentage. The APR reflects the total yearly cost of borrowing money, including interest and fees, so this is a quick and easy way to compare the total cost of each loan estimate you receive.

You will also want to investigate whether any of the fees in your Loan Estimate are negotiable. Here are the costs that you can (and should) negotiate.

Mortgage Costs That are Negotiable

When you’re looking at your Loan Estimates, there are lender fees and other costs that you can target for negotiating. Here are eight of them.

1. Your Interest Rate

Fixed rate mortgages are influenced by the bond market and typically move with the 10-year treasury rate. That being said, they are ultimately set by the market and can vary from lender to lender. So the best way to negotiate your rate is to cast a wide net. If one lender is offering you a lower fixed rate, but another lender’s terms are better or there’s another reason you’d rather give them your business, show the second lender the lower rate. Even a small difference like 0.25% can save you hundreds (or thousands) of dollars a month.

2. Loan Origination Fee

This fee is for the administrative work of processing your loan. It may pay for the loan processing, underwriting, and the mortgage banker or loan officer’s commission. Some lenders charge an additional small fee to submit your mortgage application and call it an “application fee,” while others don’t.

3. Discount Points

This is a fee that some mortgage lenders offer as a way to reduce your overall interest rate. It’s essentially prepaying the interest on your loan and can also be referred to as “buying down” your interest rate. The amount you pay and the interest rate reduction it buys will depend on the size of your loan and your lender, so if this is something that interests you, ask your lender if it’s available.

4. Title Services

These fees include escrow fees and the title insurance costs that are required to transfer ownership of the property to you. They also indemnify you against claims made by prior owners. Title insurance premiums are typically set by the state but you might be able to negotiate the escrow agent’s fees or the attorney closing fees.

5. Property Survey

A survey may not be legally required to obtain a mortgage, but if one or both parties request one (sometimes it’s necessary if there’s a disputed boundary on the property), the party that wants the survey will pay for it.

The price of the survey will depend on the size of your property, your location, and the company conducting the survey. If you are the one who wants the survey, request estimates from a few different companies to get an idea of the market.

8. Rate Lock Extension

Lenders can freeze the interest rate of the loan for a set period of time to get you the best possible deal. This is known as locking the interest rate. A rate-lock extension is the cost to extend the rate lock if you don’t close prior to its expiration. This fee is typically only negotiable if the closing was delayed because of an error or delay on the part of the lender.

Mortgage Costs That Aren’t Negotiable

Unfortunately, not everything on your loan estimate sheet is negotiable. Here are seven fees that are set in stone:

1. Appraisal Fee

This is the cost the lender must pay a third-party appraiser to determine your house’s value. This is a necessary part of the loan closing process and the lender will want to use their preferred appraiser to generate the report (i.e. the appraisal).

2. Credit Report Fee

This is the fee associated with requesting a hard credit inquiry, and goes to the credit bureau. Again, this is a necessary part of the process to issuing a home mortgage, and the costs should be very similar across all your lenders.

3. Flood Determination Fee

This is what your lender will charge to determine if your home is in a flood zone. Understanding whether or not your property is in a flood zone helps your lender assess how risky it is to put a loan on your property.

4. Flood Monitoring Fee

This is what your lender charges to track any changes in the property’s flood zone designation.

5. Tax Monitoring Fee

This is the fee your lender charges to make sure you pay your property taxes on time.

6. Tax Status Research Fee

This is how much it costs to find out the current homeowner’s property tax status.

7. Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI)

Conventional loans require a downpayment of 20% of the purchase price to avoid this fee. If your lender is requiring this, it’s because you either haven’t put down a high enough down payment, or you’re seeking a loan from a government agency. If you’re seeking a conventional loan, the lender will want to use their preferred mortgage insurance company, and if you’re seeking a loan from a government agency (like the FHA or VA), the rates are set by the government and aren’t up for negotiation.

How to Negotiate Your Loan Costs

Our five tips for negotiating your mortgage fees will depend on the costs you’re trying to negotiate.

1. Negotiate Your Interest Rate

To negotiate your interest rate, start by collecting all of your loan estimates on the same day. Since the indices on which interest rates are priced, as well as the spreads which lenders charge, can sometimes change daily, it’s a good idea to collect all of your loan estimates on the same day so you know you’re comparing apples to apples.

If you’ve chosen a preferred lender but they haven’t offered the best interest rate, show the lender the quoted interest rate you’ve received from another lender and ask if they can match it or beat it. This could be especially effective if you are negotiating with a current lender of yours.

2. Negotiate Your Application Fees

If a lender is charging an application fee but others aren’t, first ask what expense the fee is supposed to cover. If it’s to pay for the appraisal or credit report, those are fees you would have to pay anyway. If they don’t plan to use the application fee for something non-negotiable, show the lender your other loan estimates that don’t include an application fee and ask them to waive the charge.

If your loan estimate didn’t include an application fee, it might have been bundled into the loan origination fee the lender is charging. Some lenders will be willing to lower or eliminate the loan origination fee, especially if they’re trying to keep a current customer or client.

3. Use Discount Fees to Lower Your Interest Rate

Determine by how much you want to lower your interest rate, then ask your lender what fees they would charge to do that. Compare the discount fees across lenders. Please be aware that paying a fee to guarantee a lower interest rate may come with risk if interest rates are likely to go down on their own or if the buyer is not planning to stay in the home very long.

4. Research Your Options

The best way to know if you’re being charged market rate for your interest rate or closing costs is to canvas the market. But if you’re wondering what the average rates are for your area, the National Association of Realtors (NAR) publishes this data regularly.

Additionally, if you’re a first-time home buyer, a low-income home buyer, or a veteran or an active duty military person, you may qualify for any number of programs to help pay for or eliminate closing costs. To see if you qualify, check with your county, your lender, or the Veterans’ Association (VA).

5. Try to Negotiate Closing Credits

Sometimes lenders can provide a closing credit to help lower the upfront costs of closing on a home. This can be helpful if you are strapped for cash and are trying to keep more money in your pocket at the time of closing. However, there may be a tradeoff, as lender credits can sometimes result in a higher interest rate on your loan. While you may pay less at the time of closing, a lender credit may cost you more in the long run.

You may also be able to negotiate a credit from the seller of the home if there are certain types of issues with the house that arise during your inspection. Depending on the type and scope of the issue, you may be able to negotiate a certain dollar amount in credit, which can help to cover your closing costs.

What to Do if Your Loan Closing Disclosure Doesn’t Match Your Loan Estimate

Time can be your enemy when you’re in the home buying process because there are so many factors that affect your mortgage costs – including your interest rate. It’s legal for lenders to change certain closing costs between the the loan estimate and the loan closing, but some costs must stay the same.

If you’ve received your loan closing disclosure and the costs don’t match the loan estimate you received, start by asking your lender which costs changed.

Factors that May Impact Closing Costs

Some factors that can impact the interest rate and fees that were quoted on the loan estimate include:

• Changes to your income or assets
• Changes to your debt levels
• Adjustments to the index on which interest rate is based

Costs That Shouldn’t Change

There are three fees that legally should not change at all, regardless of the circumstances, between the loan estimate and loan closing. These costs are:

• Lender and mortgage broker fees
• Fees for a service or report that the lender required, but for which you had no choice in vendor
• Transfer taxes.

If any of these costs changed between your loan estimate and loan closing, you can submit a complaint with the Consumer Financial Protection Bureau.

Additionally, if you had a rate lock in place, your interest shouldn’t change unless there were material changes to your application (like a different appraised value of your property than originally estimated). If there is a valid change, the lender will issue a revised loan estimate updating the cost due to the change. If your rate has changed and you’re not satisfied with your lender’s explanation, you can submit a complaint.

Negotiating Your Mortgage After You Close Your Loan

Yes, you can renegotiate your mortgage, its interest rate, payment schedule, and the associated prepayment penalties under certain circumstances, for example, if you're having trouble making your monthly payments. This is called a renegotiated loan.

What is a Renegotiated Loan?

A renegotiated loan is a loan that was modified before it was fully paid off. The intention is usually to keep the borrower from defaulting on the loan or going into forbearance.

Renegotiating your mortgage can have a negative effect on your credit score, even if you make future payments on time. But the hit is most often smaller than it would be if you defaulted on the loan, filed for bankruptcy, or allowed the lender to foreclose on the property.

Who Can Renegotiate a Mortgage?

To renegotiate the terms of a mortgage, the borrower should contact their lender directly. Generally speaking, lenders can be motivated to renegotiate your mortgage if you are having trouble making payments; just keep in mind that your lender doesn’t have to accept your offer. Some areas you may be able to renegotiate are your prepayment penalty or your interest rate, but be sure to understand other costs you may incur as a result of your new payment structure.

The Bottom Line

Whether or not you plan to use a mortgage advisor, it’s important to go into the homebuying process with as much knowledge as possible. In the long term, this can help to save you hundreds, if not thousands, of dollars.