Are mortgage rates negotiable?

12 Replies

I'm learning a TON about the mortgage game. Theres so much that hoes on behind the scenes with mortgages being bought/ sold, etc.

With all this craziness, I just had the thought, are mortgage rates negotiable?

I've called around a bunch the past couple days shopping for the best rate. I've been quoted several different interest rates for the exact same loan. 2 specific examples are 4.375% and 4.25%. (30 yr fixed, NOO)

So my queston is this... are rates negotiable? What happens if I walk in to one of these local banks and tell them that I'll only pay 4%? Do I get laughed out of the bank? Are mortgage originators allowed to adjust rates?

I do understand that they have to make money, but my question is about the negotiability. For instance, I can't go to walmart and my bill is $50, but I offer them $47. Lol. But I can go a lot of places and negotiate.

@Cameron Price

Like many things in life, the answer is a qualified yes .... it depends.

Scenario 1:

You are buying your first, or even one of your first few, properties and you approach the local banks with "I'll only pay 4%".  You are most likely to get patronized or laughed out of the bank.

Scenario 2:

You have 10+-million in existing financing with the bank and an established track record of servicing your debt.  You have an agreement to purchase a new property and, sitting down with the bank manager, you state "I would like to pay 4% on this one".  The bank is far more likely to say, "Certainly".

Build a track record with your lenders and you will find there is some room to "negotiate" on interest rates.

Make yourself valuable enough to the banks and you may find that they will begin calling you and offering you deals if you would please borrow some money from them. Bankers love to lend to people who don't need their money.

Originally posted by @Roy N. :

@Cameron Price

Like many things in life, the answer is a qualified yes .... it depends.

Scenario 1:

You are buying your first, or even one of your first few, properties and you approach the local banks with "I'll only pay 4%".  You are most likely to get patronized or laughed out of the bank.

Scenario 2:

You have 10+-million in existing financing with the bank and an established track record of servicing your debt.  You have an agreement to purchase a new property and, sitting down with the bank manager, you state "I would like to pay 4% on this one".  The bank is far more likely to say, "Certainly".

Build a track record with your lenders and you will find there is some room to "negotiate" on interest rates.

Makes sense... but how about option 3 where i say, hey several banks have offered me 4.375% and 4.25%. Can you do better than that on interest rate? Can we get to 4.125%? Thats really what I'm asking, as a "low priority" borrower. Is there an eight or a quarter of a percent wiggle room, or is black and white on a small scale?

Originally posted by @Jeff Rabinowitz :

Make yourself valuable enough to the banks and you may find that they will begin calling you and offering you deals if you would please borrow some money from them. Bankers love to lend to people who don't need their money.

 Aint that the truth! When I started my landscaping business, I couldn't borrow squat! No tax returns? Sorry. Lol. "You dont have a financial record." No duh, I'm just starting out!    That was a frustrating time! Now it's, oh, I see that your business actually made some money, let me give you some more :) 

I understand why that is from the bank's perspective, but it sure feels backwards from the borrower's perspective. As I becoem more "seasoned" in the real estate game, I expect it will be the same in this venture as well.

@Cameron Price A quoted interest rate is meaningless, and attempting to negotiate a lower interest rate may make you feel like you have won, but may not amount to any savings in the end, or a better return. Negotiate better terms of your loan, Lower fees, longer AM, longer fixed rate period, etc.....This is just an example, but, A lower interest rate may mean higher origination and lender fees, a higher interest rate(by 1/4 point) may cut out all your fees altogether. that .25 point of savings may amount to 300/year in savings but your fees cost 3,000 to originate the loan. The higher interest rate may have $500 origination fees for 200 annual savings. That would take you 6 years for the lower interest rate to start paying dividends. Just my opinion though, you should really consult with some of the lenders on here @Charlie Fitzgerald or @Upen Patel to name a few

Originally posted by @Stuart Birdsong:

@Cameron Price A quoted interest rate is meaningless, and attempting to negotiate a lower interest rate may make you feel like you have won, but may not amount to any savings in the end, or a better return. Negotiate better terms of your loan, Lower fees, longer AM, longer fixed rate period, etc.....This is just an example, but, A lower interest rate may mean higher origination and lender fees, a higher interest rate(by 1/4 point) may cut out all your fees altogether. that .25 point of savings may amount to 200/year in savings but your fees cost 3,000 to originate the loan. The higher interest rate may have $500 origination fees for 200 annual savings. That would take you 12 years for the lower interest rate to start paying dividends. Just my opinion though, you should really consult with some of the lenders on here @Charlie Fitzgerald or @Upen Patel to name a few

 I've run itot that too. Kind of like trading in a car :) they try to make it all balance out the same anyway. 

So for me specifically, I'm getting a 30 year, fixed rate loan. So the terms are pretty set. I already had banks give me their origination fees and other junk fees that they add on, so they can't reduce my interest rate just to add another point upfront and tell me that they gave me a better deal. They just shuffled it around. 

I'm asking, with everything else equal, could a mortgage originator who wants to make a loan reduce thier interest rate if I ask? Input from an actual mortgage broker/ originator would probably be necessary to get a solid answer. 

I come from a construction background and was an estimator on commercial construction projects. If everything else was truly equal (which it never was) then the company willing to make the least profit got the job.  I'm trying to figure out if it works that way i the mortgage industry as well.

Lenders set their rates based on their profitability metrics (internal fundamentals) and they publish those rates and their originators are given rate sheets that indicate the rates offered that day by that lender  (in a volatile rate environment, these rates might change up to several times a day).  The lowest rate (without a discount/points fee being charged is the "par" rate.  Then their are rates above the par rate in .125 increments, each of which will come with a credit of fees paid back to the borrower, and there are also rates available below the par rate, which a borrower can pay discount fees/points to get.  This is called a buydown.

In any discussion with a loan originator, the first question you want to ask after deciding on a loan product type (30 yr, 15 yr, 5/1 Arm etc.), is "what is the par rate for that product if I lock today?"  The next question is, " what's my cost to buy that rate down?"  Starting at the par rate puts them on notice that you are seeking the lowest rate you qualify for...not the lowest rate they can convince you to accept.  Rate is completely negotiable and once you have the loan originator quote you the rate...that's when the negotiations begin.

Hope this helps.

PS...getting the rate negotiation done first, prior to discussing what fees you can have them cut, eliminates the opportunity for them to cut fees and then raise rates to generate excess profit to cover the fees they cut.  Remember, low rate + fees is much better than higher rate + lower fees.  The rate is also applied to the entire balance of the loan for the life of the loan...not just to the fee portion.

The mortgage industry is a very competitive space, so mortgage lenders and their representatives will always be willing to work with you to snag your business, assuming you actually qualify. Negotiating is a lot easier when you’re pitting multiple lenders against one another.

Originally posted by @Charlie Fitzgerald :

Lenders set their rates based on their profitability metrics (internal fundamentals) and they publish those rates and their originators are given rate sheets that indicate the rates offered that day by that lender  (in a volatile rate environment, these rates might change up to several times a day).  The lowest rate (without a discount/points fee being charged is the "par" rate.  Then their are rates above the par rate in .125 increments, each of which will come with a credit of fees paid back to the borrower, and there are also rates available below the par rate, which a borrower can pay discount fees/points to get.  This is called a buydown.

In any discussion with a loan originator, the first question you want to ask after deciding on a loan product type (30 yr, 15 yr, 5/1 Arm etc.), is "what is the par rate for that product if I lock today?"  The next question is, " what's my cost to buy that rate down?"  Starting at the par rate puts them on notice that you are seeking the lowest rate you qualify for...not the lowest rate they can convince you to accept.  Rate is completely negotiable and once you have the loan originator quote you the rate...that's when the negotiations begin.

Hope this helps.

PS...getting the rate negotiation done first, prior to discussing what fees you can have them cut, eliminates the opportunity for them to cut fees and then raise rates to generate excess profit to cover the fees they cut.  Remember, low rate + fees is much better than higher rate + lower fees.  The rate is also applied to the entire balance of the loan for the life of the loan...not just to the fee portion.

 Now thats a solid answer with some meat to it! Thanks Charlie. I have a civil engineering degree, and it takes a certain kind of answer to satisfy my mind. Just what I was looking for!

Now to take it a step more, what is the lender actually making on this loan? I know thats subjective to a lot of variables, but if you feel generous and transparrent, hit me with some numbers. If thats too personal of a question, I understand, since I see that you are a lender, and I'll ask it in another thread dedicated specifically to it for others to pitch it.

Using my best quote so far: 30 year, fixed rate, NOO loan, 4.25% interest. 75%LTV. Home value appraised at $72K. Cash out refi 54K. 762 credit score. 1% origination fee. $14 flood cert fee, $400 doc fee. They are going to sell it on the secondary market and it fits fannie mae guidelines.

What does this transaction look like for those of us who never get to see the other side of signing on the dotted line? 

Example of the kind of answer I'm looking for (going to be terribly wrong, but bear with me for the sake of understanding):

its s 75K loan, so they're going to sell it on the secodary market for 76K and make $1000, plus their $400 origination fee, so they made $1400.  If you negotiate the interest rate down a quarter of a %, then it will only sell for $75.5K on the market, so they'll make $500 plus their origination fee, totaling $900. If you negotiate a quarter of a percent %, but they add a point up front, then the loan sells for $75.5K, so they made $500 from selling it plus the $400 origination fee plus the point thats worth $540 totaling $1,440.... in this example, what I'm asking when I ask for sveythig else to remain equal, but drop a quarter, I'm asking the bank to make $500 less on the deal. 

If you answer this, you are the MAN! :) 

Conventional loans originated AND sold, earn the lender somewhere south of $1200-$1500 gross fees per transaction in today's market.  Their internal fees are recovered from that (processor, underwriter, doc drawer, loan officer, etc...lot's of people wok on a loan) and whatever direct fees they charged in the transaction are earned as well and they might net $300-$400 per loan. 

They also do not sell loans on the secondary market at a profit in most cases...they sell them at a discount.