9 Ways To Negotiate Better Mortgage Rates

A crucial aspect of the home-buying journey is your finances, which may often involve negotiating better mortgage rates when preparing to buy a new home. Your ability to get better mortgage rates can significantly reduce the cost of owning your new property. Achieving this is even more vital, as research reveals that owning a new home has been a bit more expensive in Canada, especially after the Bank of Canada raised its interest rates for the 10th time since March 2022. Key interest rates have increased to 5%, shooting mortgage rates up and piling more pressure on homeowners with mortgages. That can be super discouraging if you’re looking to buy a new home. However, you can use the following tips to negotiate better mortgage rates and reduce your financial burden. 

1. Look for hidden discount points and fees

Don’t focus on the interest rate alone when negotiating with a lender, as the fees you pay are equally important. So, please pay close attention to things like lender points and fees, as they could affect how much you pay in mortgages. Lender discount points are upfront fees that allow you to obtain lower rates for the loan duration. In contrast, lender fees is an umbrella term that combines various charges associated with processing your loan and can increase your mortgage cost by a slight margin. That means you pay the fees upfront, and then the savings associated with the points accrue over time. You can conduct a trade-off between the mortgage rates and fees. For example, you can use your discount points to pay upfront fees in exchange for a lower mortgage rate. So, always ask any lender you visit if their mortgage quotes include discount points. Focusing only on the mortgage rates could mean paying additional charges on your rates without knowing it. 

2. Know what constraints your lender faces

In some cases, your lender may be restricted regarding what rates or deals they give you, especially if they don’t want to appear to be discriminating against other borrowers. But that does not mean there’s no room for negotiations here. You only need to be proactive and ask questions. Find out from your lender if they have any constraints and what they are. For example, some lenders may have very little flexibility regarding their ability to change their rates or fees. Even with this constraint, there’s always an opportunity to negotiate some portions of the mortgage deal (not the entire deal). But you wouldn’t know if you don’t ask questions. So, if a lender insists they cannot negotiate due to some constraints, asking for further clarification is best. You just might be able to work out a deal favourable to both parties. But not all deals are worth negotiating, which is why the next point is also important. 

3. Know when to walk away from a deal

It helps to know when not to negotiate and walk away from a deal. That is particularly important if the mortgage terms are not beneficial, despite your best efforts to negotiate. Don’t feel pressured to accept terms not in your best interest. That’s why you must pay attention to various aspects of any deal, including the interest rates, fees, and payment schedule. But before you walk away, you should be certain that there isn’t a reasonably affordable offer elsewhere. You can read more about comparing offers from different lenders later in this article, but even in the initial stages, you must know when to walk away. 

Also, if you’re unclear about a lender’s practices, expected costs, and closing processes, you may be better off not negotiating, as you could face potential issues down the line. The most important thing is to assess whether any mortgage deal aligns with your long-term financial goals. Walking away may be smarter if any aspect of the deal makes you uncomfortable or uncertain.

4. Use a downpayment assistance program or grant

Many homebuyer incentives are available, depending on where you live. In Canada, for example, you can apply for a First Time Home Buyers Incentive and get up to 5 to 10% down payment assistance. You can even get 5% of a down payment on an existing home in exchange for another. But it would be best if you qualified first. The US also has several down payment assistance programs run by various organizations. Your credit history and household income usually determine your eligibility. It’s worth noting that a bill in the US has proposed a first-time home buyer tax credit. An eligible candidate can complete a $25,000 first-time home buyer grant application, which offers huge down payment assistance as they prepare to purchase their first home. Qualifying for such a grant can make you a serious homebuyer, which most lenders find attractive and make it easier to negotiate favourable terms. The mention of tax credits leads to the next point. 

5. Use tax credits to your advantage

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A tax credit can enhance your financial profile and demonstrate to your lender that you can manage debt responsibly. It makes reducing your annual tax burden easier, freeing up more of your income for your mortgage payment. This way, you’ll have an improved cash flow and tax liability, making you a more appealing candidate to lenders. And the more appealing a lender finds you, the more qualified you are for a better deal or loan terms like reduced fees or lower interest rates. Also, the availability of some tax credits can increase your ease of paying your mortgages or down payments, making you more attractive to lenders. 

6. Prepare a strong loan application

Negotiating better mortgage rates is almost impossible if you can’t prove that you have the financial stability to pay your loans. While the previously mentioned first-time home buyer grant application can be a massive financial boost for a first-time homebuyer, you still need to show how strong your financial standing is. Preparing a solid loan application is one of the best ways to prove your ability to pay your loan. Start by obtaining every important document you need for the process – for example, pay stubs, bank statements, tax returns, employment history, and other essential documents. Doing this will demonstrate to a potential lender that you’re serious and capable. Also, don’t forget to get pre-approved for a mortgage before entering into any negotiations. That shows that a lender has reviewed your financial information and will lend you a specific amount. You’ll be surprised how much of a bargaining chip this small step is when negotiating, as it can potentially lead to more favourable terms. You can consider the next point if your financial situation isn’t the best.

7. Compare offers from different lenders

Don’t limit yourself to a single offer, as that can easily remove your bargaining strength. Instead, compare different offers from various lenders. After preparing a strong application and getting pre-approved, leverage multiple offers from different lenders to create competition. Don’t hesitate to mention that you have received a better offer from another lender during the negotiation process. Also, let each lender know that you’ve received competing offers and are still considering your best option. Then ask if they can improve or at least match the offers you have already received. But you need to be able to prove that you have indeed received multiple competing offers. Failing to prove this can lead to a loss of trust, making you less credible and ruining your chances of negotiating for better rates. It may even affect your chances with other lenders in the future. 

8. Negotiate closing costs

Closing costs are the processing fees you pay your lender when you close your loan. Before negotiating this cost, you need to understand the fees involved. Start by researching the typical closing cost where you live and then compare it to your lender’s estimates. This cost mostly varies from place to place. For example, in Canada, you can expect the closing cost to make at least %1.5 of your new home’s purchase price. In the US, closing costs are typically 3% to 6% of the loan amount. Next, discuss openly with your lender about the possibility of reducing certain charges. During the negotiation, you can leverage your status as a valuable customer and good credit. You can even tempt your lender with the prospect of a long-term relationship with your lender and use that to negotiate better closing costs. 

9. Get professional help if it’s your first time

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Lenders have more experience than you do. They know the ins and outs of the market and how to tie you down during a negotiation process. So, don’t hesitate to seek professional advice, especially if it’s your first time negotiating for better mortgage rates. You can consult a financial advisor or a mortgage broker to help you. While some professional services may come at a cost, you will get expert guidance on negotiating your mortgage terms and landing a suitable deal. Such professionals can also help you understand the intricacies of mortgage negotiation. The deeper your knowledge about the processes, the easier to find bargaining chips you can use in your negotiations. 

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