Haggling with Lenders to Get a Lower Mortgage Rate

Haggling with Lenders to Get a Lower Mortgage Rate

How can you get a lower mortgage rate by haggling with banks or mortgage brokers?

Loan officers get rate sheets every day from their secondary marketing department or from "wholesale' lenders. These mortgage rate sheets are not for public view, because they show the price of a loan before the retail mark-up is added to the price.

Example of Wholesale Rates:

5.500% - (1.000)

5.375% - (0.750)

5.250% - (0.250)

5.125% - 0.000

5.000% - 0.250

4.875% - 0.500

In the above example, each rate corresponds to the cost of the rate as a premium or rebate expressed as "basis points". One point is equal to one percent of the loan amount.

Wholesale Pricing

The rates with numbers in parenthesis next to them indicate "rebate" points paid to the lender for selling a loan at a premium. The rates without numbers in parenthesis show the lender's "cost" to sell a loan at that particular interest rate. The rate with corresponding zeros is the "par" price, which means mortgage lenders incur no cost and they receive no rebate points for that interest rate.

Higher rates have lower short term costs because the mortgage holder will earn more in interest over the life of the loan, rather than points paid up-front. Conversely, lower rates have a higher up-front cost because the mortgage holder earns less interest over the term of the loan.

Retail Pricing

To quote a specific interest rate, a loan officer has to add basis points to the rate sheet pricing, which is essentially their profit. The lender sets a range on the minimum and maximum points the loan officer adds to the rate sheet cost. The loan officer has the flexibility to price a loan within the range. Loan officer commissions are based on a "split" of the points divided between them and the lender.

For example, if the lender's standard policy is to charge a minimum of one point and a maximum of two points per loan, the loan officer has the ability to negotiate mortgage rates according to how competitive they need to be. Based on the rate sheet pricing above, the retail cost of a 5.125% rate may be one to two points, while 5.5% may have a cost of zero to one point. So, it can pay to haggle when comparing mortgage quotes

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