Can You Negotiate Mortgage Interest Rates?

Here’s how to get a better rate on a home loan

Investors talk with a mortgage specialist.
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Mortgage interest rates have a big impact on your monthly expenses and the long-term costs of your home—which is why you shouldn’t accept the first offer you get from a potential lender. 

If you’re an aspiring homebuyer or looking to refinance, negotiating your mortgage rate can save you thousands of dollars. Learn more about how mortgage rates are determined so you can put yourself in the best position to negotiate.

Key Takeaways

  • Mortgage interest rates are not set in stone—you can negotiate for a better offer.
  • Before applying for a mortgage, put yourself in the best position to negotiate, with a strong credit score, a healthy down payment, and several competitive offers.
  • When getting rate quotes from lenders, make sure to review all the estimated loan fees and other costs to be sure it’s a fair comparison.
  • If you are unable to change the interest rate, try negotiating other mortgage costs.

Factors That Determine Your Mortgage Rate

Mortgage rates are primarily driven by what’s going on in the bond market and mortgage-backed securities, but then vary based on a number of additional factors. When you request a quote, the lender calculates a customized rate based on criteria including your personal credit and income situation, the type of loan you’re seeking, and characteristics of the home itself. Here’s how it breaks down.

Borrower Factors

Credit status: Having a good credit score is one of the best things you can do to ensure you get the best mortgage interest rate offers. It also gives you leverage if you plan to negotiate with lenders. Scores in the high 700s and above will give you more negotiating power.

Down payment: The less you borrow, the less risk you are to the lender. You can use this fact to your advantage when you’re negotiating by asking if putting down a larger down payment can qualify you for a better interest rate.

Loan Factors

Loan term: Although it’s most common to get a 30-year mortgage when you buy or refinance a home, a shorter term will usually offer a lower interest rate. Most lenders have a 15-year option, but you may also find 10-, 20-, or 25-year terms. Ask your lenders to run the numbers for different terms.

Interest rate type: While fixed-rate loans offer stability and predictability, adjustable-rate mortgages usually start off with a lower interest rate, which can be attractive to some borrowers. Just be aware that after a set period of time, the rates will adjust and could result in higher payments than you were expecting.

Loan type: Some types of loans may offer more favorable rates than others. When shopping around, consider various options including conventional, FHA, and VA loans (if you’re eligible).

Outside Factors

Home location: Interest rates can vary not just by state or county, but also by neighborhood. When you’re researching mortgage rates, you may see a lender’s national average rate, but it may change slightly once you enter your prospective home’s ZIP code. 

The economy: Rates fluctuate constantly based on economic conditions from Federal Reserve activity to real estate market trends. This is important to consider if you’re trying to decide whether it’s a good time to lock in a rate offer.

How Negotiating Mortgage Interest Rates Works

Anyone can try to negotiate for a better mortgage interest rate—whether it’s for a new home loan or you’re looking to refinance—but success really depends on your bargaining position and how much effort you put in. The process begins with being financially prepared and knowing where you stand from a credit standpoint. Next, shop around so you can show lenders that you’ve done your homework.

If you have a current loan, you could ask your lender to lower the interest rate on it through a process called loan modification, but it’s only for borrowers who are struggling to pay their bills.

Entering into a negotiation takes time and effort, but it can be worthwhile if you are able to get a lender to budge. Even an eighth of a point can save you thousands of dollars over the life of a loan, said Michael Tubin, President and Senior Loan Officer of Motto Mortgage Residential in Plymouth, Massachusetts.

Below is an example that shows the impact of negotiating mortgage interest rates on a $200,000 30-year fixed-rate loan.

Interest Rate 4.5% 4% 3.5%
Monthly payment $1,013.37 $954.83 $898.09
Total loan cost $364,813.42 $343,739.01 $323,312.18

How To Get a Lower Mortgage Rate

If you simply call a bank or broker and ask for a better rate, you probably won’t have much luck. But if you go into the conversation prepared, you may convince the lender that if they want your business, they need to put forward a better offer. Here’s how to negotiate your mortgage rate, step by step.

Make a Strong Case

Show potential lenders that you are creditworthy and responsible. If there is any way to improve your credit score before you begin negotiations, do it. That means you should pull your credit report and see if there are any areas you can clean up, and pay down debt as much as possible.

If you have the ability to make a larger down payment, that’s another tactic you can use at the negotiating table. Aiming for 20% or more could help you get a lower rate.

Be Flexible

When you have a conversation with your lender or broker, ask about the different types of loans and terms available that could potentially drive the interest rate lower. Explore different scenarios to determine what will work best for your needs.

Get Multiple Quotes

Shopping around is very important because rate offers can vary on any given day, and you can use lower offers to negotiate with your preferred lender. When using this approach, make sure you get full loan estimates, not just the rate alone, advised Tubin. That way, it’s an “apples to apples” comparison. The lender can see if they have truly been outbid—and hopefully, they’ll beat that offer.

Even if you’re working with a broker who compares rates between several lenders, do some outside research and get quotes of your own to push for better rates.

Don’t Be Afraid To Ask 

If you are unable to find a lower rate to bargain with, you should still ask about better rate opportunities. It’s unlikely that banks or lenders will volunteer a lower interest rate unless you prompt them, and the worst they can say is “no.”

Get Everything in Writing

If you are successful in your negotiations, be sure it’s reflected in your loan estimate and look over the full document carefully. In some cases, a lender might agree to one type of discount, but increase a fee elsewhere.

What Else Can You Negotiate About Your Mortgage?

If you can’t get a lender to budge on the mortgage rate, don’t fret: There may be other ways to save money.

Fees

A home loan’s closing costs include a lot of different expenses, and some of them are negotiable. Talk to your lender about lowering or removing closing-cost line items such as the origination fee, application or processing fees, and underwriting or title costs.

Points

If you’re paying points for a lower interest rate, you can negotiate how much you are charged per point. Again, this is not something lenders will offer on their own—you have to ask.

If you have a prior relationship with a lender or bank, ask if there are any customer loyalty discounts. For example, Chase offers rate discounts up to 0.50% and processing fee discounts up to $1,150 to borrowers with certain amounts of deposits and investments.

The Bottom Line

While some lenders may offer you the most competitive mortgage rate they can, others may leave a bit of wiggle room for savvy consumers who take the initiative to negotiate. But you won’t know unless you ask. Do your research and put your best financial foot forward, and you may negotiate your way to a lower mortgage rate.

Frequently Asked Questions (FAQs)

When should you negotiate your mortgage rate?

After you assess your financial and credit situation and gather a few rate quotes, you can decide if you’re in a good position to negotiate for a better rate. This timing holds true whether you’re planning to buy a new home or refinance your current mortgage. Borrowers with strong credit who meet all other loan qualifications and who can find competitive rates from other lenders will be best positioned to make their case with their preferred lender.

What are current mortgage rates?

According to The Balance's mortgage rate calculations, 30-year fixed mortgage rates were in the low 3% range as of November 2021.

How low can mortgage rates go?

In recent months, mortgage rates have reached historic lows, with the lowest rate of 2.65% recorded in January 2021. Since then, rates have trended upward, and Freddie Mac predicts that a gradual increase will continue into 2022.