There are lots of ways to shrink a mortgage payment: buy a cheaper house, make a larger down payment, or shop around for more affordable homeowners insurance.
But negotiating your mortgage rate is one of the best and long-lasting ways to make sure you’re getting the best deal.
Last year, my husband and I bought a house and negotiated our interest rate down by nearly 1%, saving us about $156 a month. While results vary with every homebuyer, the key is getting several rate quotes and using them to negotiate. Or, you could use a service that does some of the legwork for you. Here’s what to know about your two main options.
The DIY approach: Negotiating your interest rate
Here’s what you can do to negotiate your own interest rate:
Make a list of mortgage lenders. Ask your friends, family and real estate agent for recommendations. Patrick Boyaggi, CEO and co-founder of mortgage marketplace OwnUp, suggested getting at least one quote from a credit union. These financial institutions typically offer lower rates compared with banks.
Apply for the mortgage. Once you’ve narrowed your options, apply for a mortgage with three to five lenders and ask for a loan estimate. Tell them you plan to compare several offers, so they’re incentivized to give you a good deal. It’s a good idea to use a loan estimate because lenders will often make sure they’re matching a quote from this type of document.
Compare offers. You’ll probably look first to the APR, but “you need to be careful about just looking at the headline number,” Boyaggi said. “Look at the details,” such as the closing costs and whether you have to pay discount points to get the great APR.
Use the offers to negotiate. Take the lowest rate offer and email it to the other lenders, asking them to beat the rate or offer some kind of incentive. For example, they might waive certain fees or lower the APR — or both.
It’s relatively simple, but you might hit a few snags in the process. Some lenders might refuse to provide a loan estimate, while others might try to tap into your sense of loyalty. When my friend used this strategy recently, some of the lenders tried to make her feel bad about pitting them against each other.
“That’s the advantage that lenders have,” Boyaggi said. “They make you feel bad about doing something that’s in your best interest.”
My friend was able to shave half a percentage point off her mortgage rate, which saves her $80 a month — or nearly $29,000 over the life of the loan. But she said working with pushy lenders was pretty unpleasant.
Hiring a company to negotiate on your behalf
Haggling can be time-consuming and emotionally draining—and in some cases, you might not even come out ahead. According to a study commissioned by OwnUp, women pay more than men on their mortgages in every state in the U.S. except Alaska.
Getting someone else to bargain down your mortgage rate can save you from some of those headaches. OwnUp is one example of many companies that can help you do this.
The general process goes like this: You start by talking with a representative about your goals. Then, the company does a soft credit pull and negotiates with pre-vetted lenders on your behalf. You’ll receive a preapproval letter along with customized loan options and mortgage rate quotes.
You can even use these quotes when negotiating with other lenders if you’re taking the DIY approach, Boyaggi said. Typically, the companies charge the lender a fee if you close a mortgage with them, but you won’t pay anything in the process.
Whether you work with a company or gather your own quotes, you won’t know what’s out there until you start asking around.
“This can be hard to do on your own,” Boyaggi said. But even if you do, “don’t be apathetic. Don’t just go with the first offer you get from a lender.”
Read more information and tips in our Mortgage section