Can Mortgage Rates be Negotiated? What You Need to Know
If you have a variable rate mortgage that you acquired between 2015 and 2017, you’re likely paying a higher rate of interest than you should. That’s because the discount rate on such mortgages has increased significantly in recent months.
But can mortgage rates be negotiated?
Variable-rate mortgages opened between 2015 and 2017 likely have an interest rate discount (compared to the prime rate) of -0.20 to -0.60, depending on which lender prepared your mortgage.
On the other hand, a variable rate mortgage opened today could carry a discount of as much as -0.95. That’s why you should consider redoing your variable mortgage immediately before the discount drops again.
Now’s the Time to Refinance
Even if you have to pay a penalty to refinance, the money you save on your reduced interest rate can more than make up for this extra expense in the long term.
For example, a $200,000 mortgage may charge a penalty of $1,500 when you refinance, but if your new mortgage reduces your interest payments by $200 per month, you’ll make up for the penalty in less than eight months.
But before you rush out to the nearest mortgage broker, it is important to realize that not all lenders will give you the same kind of deal on your refinance. For one thing, the prime rate varies from one bank to another.
That makes sense when you consider that the prime rate is simply the lowest possible rate at which a bank will consider lending money to its best customers. Some banks are more conservative than others when setting this rate, which can mean you’d be paying significantly more every month in interest than if you’d chosen a more liberal lender.
If the rate on your variable mortgage is currently prime – 0.60 or less, refinancing your mortgage is a smart financial move.
Review Mortgage Clauses
The interest rate isn’t the only thing affecting your mortgages — other clauses that appear in your mortgage document can have an even bigger impact on how happy you are with the loan.
Some of the commonest clauses that you might find in your mortgage documents include the following.
If your mortgage has an acceleration clause, then under certain circumstances the lender can require you to pay off the entire loan balance immediately, including any interest you’ve accrued.
An acceleration clause might come into play if you miss a few payments, for example. If you can’t pay off the entire balance on demand, then the lender has the right to foreclose on you.
A prepayment clause gives you the right to pay off your mortgage early without having to pay a penalty.
If you plan to make extra payments or think you’ll be selling your house or refinancing within a few years, you’ll definitely want to get this clause in your mortgage.
Bona Fide Sale Clause
A mortgage with a bona fide sales clause can’t be paid off except by selling the house. In other words, you can’t get out of the mortgage by getting a refinance from another lender.
This is rarely a good idea for a borrower, even if the mortgage seems like a great deal otherwise.
Collateral Mortgage Clause
Unlike a standard mortgage, a collateral mortgage can’t be transferred to another lender at renewal time. Thus, like the bona fide sales clause, a collateral mortgage can trap you with a single lender.
It may be possible to get out of a collateral mortgage by having a lawyer restructure the mortgage for you, but be prepared to pay some serious legal fees to have this done.
Can Mortgage Rates Be Negotiated?
So, the elephant in the room is: can mortgage rates be negotiated?
Yes, but it is not so easy.
You can see how even if a lender offers a much better interest rate than its competitors, having a mortgage with some of the more restrictive clauses can still work out to be a terrible deal.
It’s important to have a mortgage professional compare your options so that they can give you expert advice on what the best deal truly is. That way, you can be sure that the house of your dreams comes with the mortgage of your dreams, too.
He is an experienced presenter on affordable housing topics including FHA, VA, and conventional home loan programs.
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