Negotiating mortgage rates

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According to a survey of 300 Canadian mortgage holders by The Globe and Mail, 82 percent of respondents said they were able to obtain better mortgage rates by negotiating.

"Of the survey respondents with five-year fixed-rate mortgages, interest rates varied widely, and those who haggled for a rate lower than what their lenders advertised paid less overall," the news source reports. "Among the group that bargained with their lenders, 45 percent said their interest rates were 3 percent or less, compared to 32 percent of those who did not try to get a deal. Similarly, only 5 percent of the hagglers were paying more than 4 percent interest, compared to 16 percent of the group that didn't dicker."

While this survey features an admittedly small sample size, the picture it paints is clear: Mortgage borrowers can save money by taking the time to negotiate their home loans. The following are strategies borrowers can use to make sure they're getting an affordable deal when taking out a mortgage.

Shop around
When you're picking up groceries at the market, you may not take the time to compare prices, but when it comes to something as important as a home loan, shopping around is key. There are many different types of mortgage lenders, and each may quote a different price. Speak to several lenders and obtain price quotes. This will give you a better understanding of the market as a whole, and allow you to contrast and compare. Mortgage lending can be a competitive business, so if one lender is undercutting another, they may reduce prices to retain your business.  

Understand the full cost
Interest rates aren't the only cost associated with home loans. In addition to interest and the actual mortgage amount, you must be aware of down payment requirements, private mortgage insurance, points and various other closing costs. While most individuals are relatively familiar with down payments and mortgage insurance, points and closing costs may come as a surprise.

Points are fees paid to lenders for a loan. Traditionally, the lower an interest rate is, the more points you will pay to a lender. Lenders should be upfront about how points will work and give you a dollar amount. Meanwhile, closing costs are comprised of numerous fees associated with taking out a mortgage. These can include loan origination fees, underwriting fees, appraisal fees, etc. You should make sure that each fee you will be charged is explained to you in order to get a better idea of a home loan's true cost.

Negotiate
Once you have all the pertinent information, it's time to negotiate. While you may feel strange about trying to haggle with a lender, it's important to understand that mortgage rates and fees are always negotiable. The best strategy when it comes to negotiating is making sure that you're in a strong financial position. This means having good credit, assets and a demonstrable ability to stay current on any financial obligations.

If you're in a precarious financial position, it will be more difficult to haggle prices. However, at the end of the day, a quote is not set in stone. Mortgage lenders want your business, and by taking the time to research the market and explore your options, you'll be in a better position to negotiate for lower rates and fees.

Hire help
Another option for obtaining lower mortgage rates and fees is to invest in a mortgage broker. Mortgage brokers are professionals with networks of industry contacts who may be able to find loans not available to normal borrowers, as well as negotiate on your behalf. While mortgage brokers can come with costs of their own, they can also be invaluable tools for borrowers seeking an affordable mortgage.

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