How to make lenders compete for your mortgage and get a lower rate

Use these tricks to get mortgage lenders to compete

Mortgage borrowers often think of rate shopping as extra work.

But what if you could make lenders work hard for you?

By following the right steps, you can make mortgage lenders compete and negotiate a lower interest rate.

This still involves effort, but with a little know-how you can get best possible mortgage rate quotes for your home loan.

In this article (Skip to...)

• Lenders will compete
• Make lenders compete
• Is it hard?
• Refinance with current lender
• Tips for the lowest rates

Mortgage lenders will compete if you let them

You’ve probably heard it before: It’s crucial to shop around and compare rates when you’re shopping for a home loan.

“This is your best shot at getting the best available rate,” says Brian Martucci, a mortgage expert with Money Crashers.

“It’s true whether you end up playing lenders off one another in negotiations or simply choosing the best offer provided to you.”

Believe it or not, it’s even possible to pit mortgage brokers and lenders against one another and get the best mortgage rate.

“If you have two or more lenders battling it out for your business, one will almost always be willing to make less money than the others.” —Grant Moon, CEO, Home Captan

“Lenders compete by offering different rates and fees,” says Grant Moon, CEO of Home Captain.

“If you have two or more lenders battling it out for your business, one will almost always be willing to make less money than the others.”

Clifford Rossi, a finance professor at the University of Maryland’s School of Business, explains the importance of getting several mortgage lenders involved.

“Not only will you be able to secure the best rate and points combination,” he says, “But a good lender will also help place you in the best product — such as a fixed-rate or adjustable-rate loan, conventional loan, or government-backed loan.”

How to make mortgage lenders compete

Here are six steps you can take to get mortgage brokers and lenders to compete for your mortgage:

1. Gather multiple rate quotes and written Loan Estimates, preferably on the same day because rates change daily. Until your rate is locked, there are no guarantees
2. Determine your best offer by comparing the rate, loan type, loan term, monthly payment, and closing costs listed on each Loan Estimate
3. Take your best offer to your preferred lender and ask if they can match or beat it. You could do this by calling or simply sending an email with your competing loan offer attached
4. If they won’t match or beat your best offer, ask if they will budge on other matters, like lowering their fees, such as origination or underwriting fees
5. Take your new best offer back to the first lender and see if they can match or beat this new offer
6. If you are unsuccessful, try getting rate quotes and written Loan Estimates from a fresh batch of mortgage providers and start the process over again

Negotiating for the lowest mortgage interest rate might sound tedious, but it pays off.

Dropping your rate by just 25 basis points (0.25%) on a 30-year fixed-rate mortgage could save you around $30 per month — or $360 per year — on a $200,000 home loan. That’s a savings of $10,800 over the life of the loan, considering you don’t refinance it.

Start by getting multiple rate quotes

The trick to getting mortgage providers to compete for your business is to make them aware that you are a potential customer who is seeking pre-approval or ready to submit a loan application.

In other words, you have to shop around and contact several different mortgage lenders.

“One of the most effective mortgage loan negotiation strategies is also one of the easiest and least involved,” explains Martucci.

“It requires getting multiple first offers — in the form of rate quotes — from a variety of lenders. Then, it requires presenting your lowest offer to competitors of that lender and seeing if they’ll budge.”

“This is a version of the ‘best offer’ strategy many car buyers employ,” Martucci says. “They shop the lowest offer they’ve been quoted to other dealers in the hopes of encouraging at least one to beat that offer.”

Be sure to get written loan estimates from each provider

“Written [Loan Estimates] are a great tool the lender legally has to provide you, so use it to make them compete with each other,” Moon advises.

If a loan officer won’t match or beat a competitor’s quoted rate, they may be willing to sweeten the deal in other ways.

“They can compete, for example, by offering to speed up the mortgage process, lower their fees, or simplify the documentation requirements,” adds Rossi.

Just keep in mind that the rate quote is, “as it says,an estimate,” adds Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “Until you are locked in, the rate is subject to change.”

Check on your credit history and finances first

Karen Condor, a finance and real estate expert with USInsuranceAgents.com, says it’s important to do your homework before you begin the rate shopping process.

“It’s easier to get lenders to compete and be flexible about rates if you have a good credit score, solid credit report, higher down payment, and low monthly debts.”

“Work to get these items in order ahead of time,” says Condor.

Improving your credit score will ensure you’re in the best position to negotiate for a low rate and even reduced closing costs.

In many cases, improving your credit history is more helpful than lowering your debt-to-income ratio when it comes to getting the best deal during the mortgage application process.

Is it hard to get mortgage lenders to compete?

Whether or not a particular loan officer is willing to compete for your mortgage often depends on their loan volume at the time.

“If a lender is busy, they will naturally focus on transactions that make them more money,” says Moon.

“But if a lender needs the business, they will be focused on all deals. So the biggest challenge for a consumer is finding a competent lender that will still want your business even if you negotiate them down.”

The good news is, mortgage activity has slowed down substantially since its height during the Covid pandemic. Now, fewer borrowers are looking to buy or refinance. And that means lenders are more eager to win new business. So it may be easier to get lenders to compete for your loan than it was over the past couple years.

What if I want to refinance with my current mortgage lender?

If you already own a home and plan on refinancing, you might want to start the search with your existing mortgage lender.

Some lenders offer loyalty discounts to refinance applicants.

“Make sure you ask about this before taking your mortgage elsewhere,” says Martucci.

“These discounts can be especially common when you have substantial funds on deposit with the lender or bank, even if you don’t currently have a mortgage loan with them.”

Put another way, you may be able to get an ideal rate if you already have a high-yield account with a bank offering loyalty discounts.

Additionally, your current lender may be able to underwrite your loan faster than a new lender.

“They have most, if not all, the documentation they will need. And if they can close in a shorter period of time, this, too, can potentially save you money when it comes to rates,” says Meyer.

Ask about a Streamline Refinance

Homeowners with government-backed loans (including FHA loans, VA loans, and USDA mortgages) have another good option for refinancing.

“Call up your current lender when rates have fallen and ask them to do a Streamline Refinance. They are likely to accommodate your request if you are a low-risk borrower, as losing you as a customer can be costly,” says Rossi.

Streamline refinancing is a great way to lower your interest rate, as these loans require little documentation and can move through the pipeline more quickly than a traditional refinance.

Don’t limit yourself to your current lender

Even if you love your current lender, “you should still shop around for the best rate,” adds Moon.

In many cases, your current bank may not be the best option for a new home purchase or refinance because they don’t specialize in the type of loan you need. Or, their rates may be less competitive.

“Remember that your existing lender is profiting off of you, so don’t be afraid to ask for quotes from other lenders,” Moon adds.

Some lenders have a niche

Depending on what you’re in the market for, you may find a mortgage company that specializes in underwriting your type of loan.

Some lenders are friendlier to borrowers who are seeking government-backed conventional loans (Fannie Mae and Freddie Mac), jumbo loans, adjustable-rate mortgages (ARM), and so on.

How to find the best mortgage for you

Whether you’re a first-time home buyer or a current homeowner looking to refinance, don’t just focus on the quoted rate.

“Look closely at the APR — annual percentage rate — in your written loan estimate. This indicates the full cost of the loan with fees added,” recommends Moon.

“Factor in all the closing costs, down payment needed, discount points, prepayment penalties, and if private mortgage insurance is required, too,” Condor suggests.

Also, find out how long the lender will take to close your loan.

Make sure the rate lock offered — typically 30-45 days — will be long enough to get you through to closing day and ensure a low fixed-rate.

More tips to find the the best mortgage rate

The bottom line is that you’ll need to do some homework if you want to find the lowest refi or mortgage rate.

Start by checking current mortgage rates so you have an accurate benchmark for comparison.

“The more lenders you check out when shopping for mortgage rates, the more likely you are to get a lower interest rate,” Condor says.

Also, research loan products from various types of financial institutions to find out what special programs they offer.

Broaden your search to include credit unions, regional or community banks, direct lenders, mortgage brokers, and national banks.

You won’t know which is best for you until you’ve explored all your options.