What Is A Mortgage Rate Lock
When you receive a mortgage loan offer, a lender will usually ask if you want to lock in the rate for a period of time or float the rate. If you lock in, the rate should be preserved as long as your loan closes before the lock expires.
If you dont lock in right away, a mortgage lender might give you a period of timesuch as 30 daysto request a lock, or you might be able to wait until just before closing on the home.
Make sure you get multiple mortgage loan offers and see which lenders mortgage interest rate offer is the best one. Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan.
Should I Refinance My Mortgage To Get A Lower Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.
Is it worth it to refinance my mortgage for .5 percent?
Your new interest rate should be at least . 5 percentage points lower than your current rate. The old rule of thumb was that you should refinance if you could get a rate that was 1 to 2 points lower than your current one.
How To Negotiate Your Mortgage Rate
Your mortgage rate can be negotiated, and most lenders know this, so they move the initial rate they offer you up a few ticks with the anticipation of having to lower it.
To negotiate your mortgage rate, you will have to compare loan offers from multiple lenders. Your interest rate and closing costs can vary widely depending on the lender you work with. Comparing loan offers is the best way to be sure youre getting the most competitive terms on your loan.
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Understand The Different Costs
Closing fees come in different sizes and from various sources. There are the fees that the lender charges, and then there are also state and federal taxes that homebuyers have to pay. Lender fees are going to vary from one bank or mortgage broker to the next, and this is where you can find the most potential savings. On the other hand, theres little to no room for negotiation with things such as city, county, and state transfer taxes, prepaid property taxes, and recording fees.
The most common costs that homeowners will face to close on the home include a land survey, a home appraisal, credit checks, a loan origination fee, an application fee, and home inspection fees. A borrower may also purchase points to lower the interest rate over the life of the mortgage loan. The amount that someone is going to pay in closing costs depends on the financial company and the mortgage-related fees that it charges, the state in which the home is located, and how much the loan is for.
In 2019, the highest average closing costs, excluding taxes, were in the District of Columbia , New York , Hawaii , California , and Washington , while the lowest were in Indiana , Nebraska , Iowa , South Dakota , and Arkansas .
Ways To Negotiate Your Mortgage Rate
Many people arent aware they can negotiate their mortgage or refinance rate. Actually, its totally possible. But its not as simple as haggling over percentage points.
To negotiate your mortgage rate, youll have to prove that youre a creditworthy borrower. And youll have better luck if you come to the table with a lower quote from another lender inhand.
Here are four strategies you can use to try to get a lower rate before you lock:
We cover each strategy in more detail below.
But the basic facts are: If you have strong financials, and youre willing to look at more than one lender, you can usually find a lower rate for your mortgage.
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Subtly Remind Them You Can Also Take Your Business To A Competitor
If youve had the same bank for years, why cant they reward you for being a loyal customer?
Point out that youve kept your savings account with them, despite some other banks having better bonus tiers, cashback, etc. You can also point out that you have existing fixed deposits with them, or if you own a business that youve always used their SME credit lines or business accounts.
Given all the business you do with them, they should be willing to give you a better rate for your housing loan in Singapore.
If you want to push harder, you can subtly hint that you might take your business elsewhere, should they disappoint you.
Break Down Your Loan Estimate Form
The lender is required to give you theloan estimate form within three days of completing a mortgage application, but theres nothing keeping them from giving it to you sooner, so ask for it. This form includes an itemized list of costs, including your loan amount, interest rate and monthly payments. On page two it has a section called Services you can shop for, including:
- Pest inspection
- Survey
- Fees for the title search and the settlement agent, and for the insurance binder
The vendors listed on the form could be your lenders preferred vendors, but youre not required to work with them, and your lender is also required to offer alternatives. You can shop around for lower-priced vendors for different services on your own however, if your independently-selected vendor changes its pricing before closing, youll be on the hook for any increase. If you choose a lender-provided vendor instead, its pricing isnt allowed to change by more than 10 percent from the original quote.
Additionally, if youre buying a home, note that the seller or sellers real estate agent might be the ones who chose the title and escrow provider. If you want to get new vendors in this case, youll need to negotiate the purchase agreement with the seller, not with your mortgage lender.
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What Is The Lowest Possible Interest Rate
Its impossible to negotiate without knowing just how much lower your bank can go!
There are three simple ways to find out:
- Use our to find out what off-market discounts are being offered.
- Check your banks website to see what rates they are offering new borrowers.
What youll find is one of two things:
Why Do Banks Offer Different Mortgage Rates
Not all banks offer the same mortgage rates. In fact, some banks can offer very different rates for what is otherwise the same product. For example, the advertised rate for a 5-year fixed-term mortgage could be 0.5% higher from TD Bank than from BMO .
Why is this the case? Well, itâs because each bank has different lending criteria, and is comfortable with different amounts of risk. Other factors like desired market share, competition, and marketing policy will also change a bankâs pricing strategy. This is why you need to shop around and compare rates from multiple banks whenever you get a new mortgage, renew your mortgage, or refinance.
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No : Start Complaining
Even if youre financially prudent, very often life just happens usually its a personal matter that drives this situation. If thats your case, you may find some solace in the fact that less than 50% of mortgages are actually kept to maturity. But you still have one last tool in your arsenal: start complaining. Speak to the bank manager, then the VP, then try the ombudsman. If that fails, consider getting some cardboard and making a placard. Nothing says unfair like: I have to pay $30,000 to break my mortgage, so I can sell my home after my divorce.
Factors That Determine Your Mortgage Rate
Mortgage rates are primarily driven by whats 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 youre seeking, and characteristics of the home itself. Heres how it breaks down.
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No : Cut The Costs With Prepayments
Quite often your mortgage contract will allow you to make a prepaymenta lump sum payment against the principal. By taking advantage of prepayments, you can lower your loan, which should lower your penalty. Talk to your mortgage advisor or lender to confirm how a prepayment will impact the penalty charged to break the contract early.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
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Negotiate A Lower Refinance Rate
Many first-time mortgage applicants dont know they can negotiate interest rates with their lenders.
Youll have more negotiating power when you have a strong credit history, plenty of home equity, and the ability to go with a shorter loan term.
But its most important to shop around among several different lenders. If you get a lower rate quote from one lender, show it to the other lenders youre considering. One of them may be willing to beat your best mortgage rate offer.
Even if you plan to accept a higher interest rate in exchange for lender credits to cover closing costs, you should still negotiate for your best mortgage rate first.
Pull Your Credit Report And See Where You Stand
Websites like FreeCreditReport.com and will let you view your score and complete a three-bureau report for free each year. Knowing where you stand will give you some leverage when talking to banks and lenders. Youâll have a better idea of what you can afford with your credit score by your side, and youâll be able to negotiate with more confidence.
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Speak To Multiple Lenders
Some people make the mistake of getting a loan with the first lender they speak to. They feel comfortable with them, the loan terms seem pretty good, and the interest rate is competitive. But this is the worst thing you can do. You can almost always get a better deal. Even if you love your loan officer, you can negotiate the terms to get the best deal on your loan possible.
You should get a loan estimate from at least 3-4 lenders. Compare the interest rate, closing costs, and other fees they are charging. Most likely, you will notice there is a pretty wide variance in the loan offers this is pretty normal. Some lenders will charge a higher interest rate and make the money back on the closing costs charges.
How To Reduce Closing Costs
You can also reduce closing costs by using the power of negotiating and comparing lenders.
Lenders can lower their loan origination and other lender fees. These fees cover overhead costs, so you shouldnt expect a lender or mortgage broker to waive its fees completely.
But you can make a case for paying less, especially when youre taking out a larger loan amount and especially when youre holding a lower fee quote from another lender.
Some closing costs pass through the lender: the home appraisal fee, for example, which is charged by a third-party home appraiser.
A lender typically wont lower this fee since its simply covering its costs. But you can ask for a different appraiser in advance if you can find one with a lower appraisal fee.
If you do need to accept a higher rate so the lender will cover some or all of your closing costs, you should still try to negotiate for lower fees.
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What Affects Mortgage Interest Rate
Mortgage ratesFactorsaffectinterest rate
What factors affect mortgage interest rates?
Also know, what factors affect mortgage interest rates? Here are seven key factors that affect your interest rate that you should know
- Home location.
- Home price and loan amount.
- Down payment.
- Interest rate type.
- Loan type.
are mortgage rates going down in 2019?mortgage2019ratesexpected
Contents
How To Shop For A Lower Rate
The best thing you can do to get a low mortgage rate is shop around. Youll get a unique rate quote from every lender. Compare the interest rate, closing costs, and points included in these estimates. Youll see which lender actually has the most competitive costs over the life of a 30year mortgage.
Remember: The company with the lowest upfront mortgage rate might not actually be the cheapest company once points, fees, and closing costs are tallied up.
The company with the lowest upfront mortgage rate might not actually be the cheapest company once points, fees, and closing costs are tallied up.
Lenders do have some flexibility with the rates they offer you. So if you prefer one lender maybe because you know the loan officer personally, or have a branch nearby dont be afraid to bring them a lower estimate and see if they can match it.
In some cases, the company you want to work with will be able to lower your rate to compete with other loan estimates. Other times it wont but it never hurts to ask.
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Consider Your Current Financial Goals
Before you sign your mortgage renewal slip and send it back, you should first review your financial goals. You want to be sure your current provider can offer a mortgage product that suits your needs. For example, if your current mortgage term is a five-year fixed rate, the renewal slip will likely be for another five-year fixed. If you think youâll stay in your home for that amount of time, great. But if you know thereâs a chance youâll downsize or potentially move to a new city in the next few years, you may want to look for a three-year product instead.
Other financial goals to consider may be how extra money could affect the prepayment options you want. Also consider whether it makes sense to refinance your mortgage or get a HELOC to access equity. Knowing what you need in a mortgage should help you form the decision around which lender and product to choose.
How Much You Can Drop On Your Down Payment
If youâre ready to throw down 20 percent of the asking price on your new home, youâll likely have good mortgage options and greater flexibility. That said, the average American puts 11 percent down on their home, which is significantly less than the âstandardâ 20 percent. For buyers under the age of 35, that number drops to just 8 percent. So, donât be afraid if you canât pull together the full 20 percent of your homeâs purchase priceâyouâre in good company.
How much money you can afford to put down at closing, your employment history, and your net worth each play an important role in deciding whether or not you get approved for a mortgage. When you do get approved, theyâll also play a role in determining what the rates and conditions will be.
Hereâs a good example:
Letâs say youâre interested in a $100K, 30-year mortgage. If you have a credit score of 760 or above, youâll qualify for an interest rate of about 4.24 percent. But what if your score is 640 or below? Youâll probably be closer to an interest rate of 5.83 percent. While that may not sound like a big difference, it adds up. Take a look:
MORTGAGE 1: Credit score of 760+
Principal : $100,000
The total cost of mortgage: $211,896
Total interest paid: $111,896
The second mortgage costs $98 more per month â thatâs $1,176 per year. By the end of the 30-year repayment period, you will have spent $35,008 more on interest for your mortgage.
Thatâs a big difference.
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Be Prepared To Switch To Another Lender
Making it clear to your lender that you are going to refinance with or without them can be all the incentive your bank needs to offer you a more competitive deal. Show them evidence of any attractive offers you may have received from competitors, so your existing lender can match it or beat it.
If they reply with a counteroffer, be prepared to reject it and ask to speak to their manager if its less than what youre willing to accept. Sometimes, it comes down to playing hardball. If you really want them to know you mean business, request they send you the discharge form. If they see theyre going to lose a loyal customer, they might just fight to keep you.
If your lender is still not prepared to make you a better offer, then theres not much reason to stay, and you will likely be better off financially by refinancing.
