6 Strategies for Homebuyers to Secure the Best Mortgage Rates

6 Strategies for Homebuyers to Secure the Best Mortgage Rates
Original content sourced from Realtor Magazine and Melissa Dittman Tracy.

Currently hovering around the 8% mark, mortgage rates are causing many potential homeowners financial stress. Higher borrowing costs and rising home prices remain a concern. However, certain strategies can help prospective homeowners secure a better mortgage deal:

1. Research Multiple Lenders: Securing various mortgage quotes can lead to substantial savings over the loan's tenure. Different lenders often provide varying rates to identical applicants. Hence, when comparing, it's essential to consider additional aspects like terms and associated fees from various financial establishments.

2. Hone Your Negotiation Skills: While many buyers efficiently negotiate home prices, surprisingly few apply the same bargaining tactics to their mortgage, which can often lead to more substantial savings than a single-time price deduction. A LendingTree survey revealed that of 2,000 consumers, 63% negotiated the home's price, but a mere 39% discussed their initial APR or refinance rate. Those who ventured into APR negotiation witnessed an impressive 80% success rate. For instance, on a $350,000, 30-year fixed-rate mortgage with an APR of 6.50%, even a quarter-point reduction to 6.25% could save $684 annually, amounting to over $20,500 over the loan's life. Prospective homeowners with superior credit scores and minimal debt often have a higher likelihood of securing reductions. Brandon Snow, the executive director of Ally Home, emphasizes the importance of obtaining quotes from at least three lenders and inquiring about relationship discounts, especially if one is an existing customer. "Leveraging quotes from competitors clearly indicates your willingness to explore various avenues but also showcases an openness to negotiations to retain your patronage."

3. Explore Buying Mortgage Points: Opting for mortgage points can decrease the loan's interest rate, thereby reducing interest over the loan's duration. While this strategy requires a higher upfront payment, it can be a worthy investment, especially for those intending to inhabit their homes for a considerable duration.

4. Seek Out Discounts: Existing customers may be eligible for "relationship discounts." Several financial institutions extend benefits like waiving specific fees or trimming closing costs for their long-standing account holders.

5. Stay Informed About Float-Down Options: Mortgage rates can shift during the closing phase. Some lenders allow borrowers to modify their rate if there's a notable change in the market rate during this timeframe. Being aware of such provisions from the beginning can safeguard against overpaying.

6. Reconsider Loan Duration: 30-year fixed-rate mortgages are standard. However, options like 40-year mortgages exist. Prolonging the loan term can reduce monthly installments but often results in an augmented total interest payment. Alternative loan types like adjustable-rate mortgages (ARMs) are also available. While ARMs initially offer a reduced interest rate, they will adjust according to prevailing market rates after a specified duration.

In the ever-changing realm of real estate, one advice stands out: "Commit to the home; be flexible with the rate." This implies that buyers should prioritize securing their ideal residence, and, if need be, mull over refinancing when rates become more amenable.