Know What Mortgage Terms You Want And Need
Familiarize yourself with the loan options available to you. When its time to negotiate mortgage rates, youll want to make sure that the loan terms fit within your budget and long-term plans. For example, variable interest rates are typically lower than fixed interest rates initially, but could be less affordable later.
Its crucial to know upfront in your mortgage negotiation strategy what type of loan and terms youre looking for, and how they may affect the cost of the loan. A mortgage calculator can help you estimate your monthly payment and loan costs.
Call At Least Five Banks Lenders And Mortgage Brokers
Think of mortgage brokers as mortgage tour guides. Theyâll walk you through the process of taking out a loan, negotiate mortgage rates with banks and lenders, and connect you with a loan that fits with your wants, needs, and finances.
When you reach out, ask about current mortgage interest rates. This will give you an idea of what youâll be paying month-to-month when you do close on a house.
Make sure to ask your mortgage broker if their quote for mortgage interest rates is based on the day or the week. You can never assume that your last rate quote still stands, so check often. You always want the most recent information.
Then, find out if those rates are fixed or adjustable. Adjustable mortgage rates tend to be lower at first glance. However, when interest rates go up, your payments will increase with them. Fixed mortgage rates remain the same for the entire duration of the loan. Fixed interest rates are a bit higher, but your monthly payments wonât change.
Having the answers to these questions will help you to determine what your payments will look like once youâre locked into a contract. Ask now to avoid any nasty surprises later.
Find Out If Anything Will Stop Your Bank From Negotiating
So what allows you to get a lower interest rate?
- The bigger the loan, the lower the rate!
- Borrowing under 80% of the property value will get you a better rate with some lenders.
- Banks offer better deals on home loans than investment loans.
- Banks will offer a better rate to win a new customer which is why people refinance.
When will you pay a higher interest rate?
- Investment loans and interest only loans tend to have higher rates but some banks will still negotiate
- Some banks refuse to negotiate if you owe over 80% of the property value.
- Most banks will not negotiate the rate for so its often better to .
- The bank may not have an appetite for your customer type, for example, if youre a , or youre a property investor.
- If youve missed payments on your debts, theyll refuse to negotiate so its better to .
- Banks dont offer their existing borrowers the best rates. They actually punish loyalty!
Do you need help to get a better interest rate? Give us a call on 1300 889 743 or fill in our and our mortgage brokers will do the negotiating for you!
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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:
You Should Be Able To Negotiate Your Mortgage Rate
- Yes, mortgage rates are negotiable in most cases
- If anyone tells you otherwise theyre probably fibbing
- Theres always wiggle-room like there is with any other product you buy
- But you wont know this unless you take the time to ask!
In most cases, mortgage rates are 100% negotiable, like many other costs involved with obtaining a mortgage, such as the loan origination fee.
This was especially true back before the mortgage crisis, but a little more complicated these days thanks to compliance issues.
There are also some online lenders today that dont use loan officers, nor pay out commissions based on rates. So in these cases, you cant really negotiate with the company directly.
But if there is an individual involved, which there often is, theres a good chance youll be negotiating.
Like anything else you shop for, you may be told that prices/rates are firm, or are as low as they can go. Psssh.
This isnt the case, as mortgage rates can always be adjusted up or down in a variety of different ways, and commissions and fees can often be lowered or waived.
Even if the rate cant be flat-out lowered, you can buy down your interest rate by paying mortgage discount points.
This isnt pure negotiation because youre actually paying prepaid interest upfront to lower costs during the loan term, but it does prove that mortgage rates can be adjusted.
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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.
Standard And Collateral Charges
A mortgage is a loan secured by property, such as a home. When you take out a mortgage, the lender registers a charge on your property. The type of charge determines which loans your lender allows you to secure against your property.
A standard charge only secures the mortgage. It doesnt secure any other loans you may have with your lender, such as a line of credit. The charge is registered for the actual amount of your mortgage.
With a collateral charge mortgage, you can secure multiple loans with your lender. This includes a mortgage and a line of credit.
The charge can be registered for an amount that is higher than your actual mortgage. This allows you to borrow additional funds on top of your original mortgage in the future. You avoid paying fees to discharge your mortgage and register a new one. You only have to make payments, including interest, on the money you actually borrow.
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Pros Of Discount Points
- Lower interest rate Credit score aside, buying points is a way to ensure that youre given a great interest rate. That decision can save you a lot of money on interest costs over the life of the loan.
- Lower monthly payment Your interest rate helps determine your monthly payment. The lower your rate, the lower your monthly payment.
- Tax deductible If you itemize deductions on your tax return and meet all other requirements for taking a mortgage interest deduction, you may be able to write off money you spend on discount points.
Play The Loyalty Card
As already mentioned, use your loyalty as a bargaining chip if you must. Many borrowers stay with the same lender for years, and if you have a good history with them, it can help when it comes to negotiating a lower rate.
Prior to asking for a lower interest rate, review your position and check that you have been making your repayments on time and that your LVR (Loan to Value Ratio has gradually been getting lower.
With this, you now have a current timeline of your loyalty and proof of being a reliable customer. This can be very helpful.
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Determine Your Odds Of Winning At The Negotiation Table
Being a loyal customer does not mean staying with your lender for as long you can. Loyalty in this case is different and it could make or break your negotiation with your lender.
Before even thinking of proving your loyalty to your lender, see to it first that you assess how you have been as a borrower. From there, determine the odds of you winning the negotiation and getting an interest-rate discount.
Of course, the number-one requirement you have to meet to prove your loyalty is to show that you are consistent you never missed payments, you are prompt in answering queries, and you strictly follow the rules set by your lender. If you tick all of these boxes, your chances of scoring an interest-rate discount skyrockets.
Another way of gauging your odds is by assessing if your current circumstances are ideal to your lender.
For instance, you are more likely to be considered an ideal borrower if you are an owner-occupier and you already own at least 20% of your property. It is also a plus if you are employed in a full-time position. Your lender will likely be more open to talking about interest-rate discounts if you are paying principal and interest.
On the other hand, do not expect your lender to be as open as they could if you have an investment loan and you are paying on interest-only terms. The likelihood of you getting a discount on interest rate is close to zero if you also do not have a full-time job.
Choose Your Loan Term Carefully
Short-term loans are less risky and, as a result, have lower mortgage rates. The trade-off for these kinds of loans are larger monthly payments since you’re paying off the principal in a shorter time. With a longer-term loan, you spread the payments over a longer period of time, leading to lower monthly payments with a higher interest rate.
Short-term loans will generally save you more money in the long run, but long-term loans may leave you with more disposable income every month. If you’re looking specifically for low mortgage interest rates and savings over the life of the loan, a short-term loan is your best bet.
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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.
What Closing Costs Are Negotiable
Closing costs are the fees and other costs that lenders and third-parties charge you for originating your mortgage and buying your home. Banks, real estate agents, lawyers, title research companies, credit reporting agencies and the government require various services during the closing process, including drafting and reviewing loan documents, checking and updating official records, reviewing your credit profile and brokering your loan and home sale.
Not every cost is negotiable. Any fee charged by the government is set in stone. Likewise, any service from a third-party provider will be difficult to negotiate with your lender. That means you wont have much room to negotiate your credit report fee, flood determination fee or appraisal costs. Lenders outline “services you cannot shop for” on page two of the loan estimate form.
|Fees you can negotiate|
|Real estate commissions||Flood certification fees|
You have plenty of opportunities to negotiate for a better mortgage. Start by negotiating for lower interest rates, discount points and lower origination fees. Negotiating these fees may dramatically reduce the total cost of your loan.
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Use Loan Estimates To Negotiate A Lower Rate
A loan officer has 3 days from the time you complete your loan application, and they pull credit to give you the loan estimate breaking down the loan fees. The interest rate, closing costs, and other lender fees will be listed on the loan estimate.
You can take the best loan estimate to each lender and have them try to beat the offer. They will most likely come back with a lower rate and closing costs to get the deal done.
If there is a loan officer you feel the most comfortable with being capable of getting your loan closed on time, then you can give them the best loan estimate you got and tell them to beat it to earn your business.
Get An Offset Account
If you get an linked to your home loan, it functions as a regular everyday account, allowing you to withdraw money from ATMs and buy things using a debit card. But the money in the account is also offset against your mortgage, so you pay interest only on the balance of your loan minus all or part of what is in your offset.
What happens if I maintain $50,000 in my offset account?
If you have a $600,000 home loan with a 3.6% interest rate and a 100% offset account with a $50,000 balance, interest will be charged on only $550,000 of your home loan.Note: Some loan products offer only a partial offset feature.
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Getting Started With A Better Mortgage Rate
An IG Mortgage Specialist can discuss the kinds of mortgages and rates available to you for your particular circumstances, and an IG Consultant can help you integrate your mortgage into your financial plan. Contact us today to get started.
You can see more details on current rates and conditions here.
An IG Consultant can also help you to integrate your mortgage into your financial plan. Contact us today to get started.
1 Minimum mortgage amount of $100,000. Certain conditions apply. For full details contact an IG Mortgage Specialist.
Investors Group Trust Co. Ltd. is a federally regulated trust company and is the mortgagee. Mortgages are offered through I.G. Investment Management, Ltd.* Inquiries will be referred to a Mortgage Planning Specialist .
*In ON and NS, registered as a Mortgage Brokerage and a Mortgage Administrator , in QC, registered as a financial services firm and in NB, registered as a Mortgage Brokerage.
Real Estate Agent Commissions 6% Of The Purchase Price
Most residential real estate transactions involve both the buyers and sellers real estate agents. For the most part, homebuyers dont have to come up with the cash to pay your real estate agent out of pocket. The seller typically pays both the sellers agent and the buyers agent out of the sale proceeds. A common commission is 6% of the purchase price, split between both the seller’s and buyer’s agent. The going rate will vary based on your local market, so ask your real estate agent for exact details.
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Consider Total Loan Costs
While the interest rate youre given is important, it isnt the only thing to consider when trying to save money on your mortgage. You also have to consider the total loan costs, including any fees associated with closing on your home loan. While youll pay many of those fees upfront when you close on your new home, others can be rolled into your loan amount, which can raise your monthly payment and increase the amount you pay overall.
That said, some of these fees, particularly any administrative fees charged by the lender, may be negotiable. For example, you may be able to get the lender to waive its application fees or reduce its loan origination fee. But other fees arent up for discussion. An appraisal fee, for example, is often set by the appraisal company itself rather than the lender, and often cant be negotiated.
Think About Your Goals
While many people focus on the interest rate when negotiating their mortgage, you might want to consider your prepayment options too. The ability to make additional payments to your mortgage without having to pay fees for that privilege can be tremendously beneficial. This is especially handy for anyone who knows that theyll soon be coming into a large sum of money.
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What Is A Mortgage
When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage.
A mortgage is a legal contract between you and your lender. It specifies the details of your loan and its secured on a property, like a house or a condo.
With a secured loan, the lender has a legal right to take your property. They can do so if you dont respect the conditions of your mortgage. This includes paying on time and maintaining your home.
Unlike most types of loans, with a mortgage:
- your loan is secured by a property
- you may have a balance owing at the end of your contract
- you normally need to renew your contract multiple times until you finish paying your balance in full
- you may have to meet qualification requirements including passing a stress test
- you need a down payment
- you may need to break your contract and pay a penalty
- your loan is typically for an amount in the hundreds of thousands of dollars