interest rate

For most Americans, buying a house includes buying a mortgage. Obtaining a mortgage isn’t as simple as filling out an application and waiting to be approved. You hire a loan officer in a mortgage company, whom you pay to find you a mortgage. Even large banks that finance mortgage loans require you to use their loan officers when you apply for a mortgage. These loan officers charge fees and interest rates that are negotiable.

Create Competition

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Define what a low interest rate means for your situation. Not all interest rates are for the same situation. The interest rate for a low down payment, less-than-perfect credit borrower is higher than the interest rate for a high down payment, perfect credit borrower. Shop your loan with several mortgage lenders–at least three, but the more the better. Tell the companies who didn’t quote you the best rate to beat your lowest rate or lose your business. Some will provide you a new lower interest rate quote. Continue working these lenders against each other until one lender prevails.

Negotiate the Whole Loan

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Negotiate more than your interest rate. Interest rates and settlement fees work hand-in-hand with each other. If you pay discount points, you can buy your rate lower than the average rate. Negotiate your settlement fees before you negotiate your interest rate. Set the fees at a level you are willing to pay, and then ask for a lower interest rate without a rise in fees. If you are willing to pay a discount point–1 percent of the loan amount–to buy the interest rate down, do not mention this during the negotiation. Wait until it seems the fees and interest rate have been negotiated completely down, and then ask what the rate would be if you paid a discount point.

Watch the Rates During the Process

Freddie Mac, the nation’s second-largest mortgage investor, publishes the average interest rate and points on loans in the United States. They have been publishing these rates since 1977. Freddie Mac provides them to the public, and the rates are available on several websites. If you are being quoted a rate higher than the average rate, explain to the loan officer you expect to pay a lower-than-average interest rate and lower-than-average closing costs.