Originally, I was going to entitle this post, How To Get The Best Mortgage Interest Rate Possible. But after a couple weeks of battling, I failed to do such a thing due to a lack of convincing skills, poor timing and good old fashion bait and switching.
Before I tell you about my failure, let me tell you how I recommend getting the best mortgage rate possible. I’ve refinanced eight times across four properties over 16 years.
I never thought I would refinance again given we were in a rising interest-rate environment. The Fed decided to kill our expansion in 4Q2018 when they signaled a couple more rate hikes in 2019 and beyond.
It also felt good when I paid off my last property in 2015. With rising cash flow since then, I figured I would just pay off my 5/1 ARM that was set to adjust this summer to 4.5% from 2.5%.
But since the Fed backtracked, mortgage rates have collapsed in 2019 and will likely stay depressed for the foreseeable future. I figured it was worth refinancing again, especially if I could get a reasonable rate with all closing costs baked in.
In the end, I locked in a 10/1 ARM for 3% with -3.75 points equal to a $3000 credit towards closing.
This rate is pretty good, but I could’ve gotten better terms. This article will help you figure out what to do and what not to do to get the best mortgage rate possible.
How To Get The Best Mortgage Rate Possible
The key to getting a better price is to always generate competition. For example, the more employers compete for your services, the more you will get bid away for a higher salary.
I still remember sitting in the living room of a house I wanted to buy back in 2004. The asking price was $1.55 million and it had been sitting on the market for two months. I was tempted to offer $1.45 million, which is unusual in a market like San Francisco.
I had made up my mind to low ball the sellers when in walked a doctor couple at the open house. They sat in the dining room and marveled at the wainscoting, crown molding and high ceilings.
Suddenly, my desire to low ball faded away due to perceived competition. Instead, I offered $1.525 million, or $75,000 more than I had planned. I still wonder to this day if my emotions got the best of me. Thankfully, it all worked out in the end.
Here are the steps I take to get the best mortgage rate possible. Miss one step and your failure rate will go way up.
1) Get written official quotes from competing lenders. Verbal offers mean nothing. Everything must be in writing in order for you to get the best rate possible. I usually just fill out my mortgage request with Credible because they have a great marketplace where qualified lenders compete for your business.
Their lenders contact me over phone and email after I input my criteria, and then they send me written offers. Remember, everything is negotiable so negotiate. If their rate isn’t the best in this free market, then move on to the next step.
2) Contact your relationship bank. Your relationship bank is the key to getting the best mortgage rate possible. They have a lot of your money and you probably have multiple accounts open with them. They certainly don’t want to lose your business.
If you have competitive written offers, you need to present those written offers to your banker or mortgage loan officer and tell them to beat your written offers, not just match. If you have uncompetitive written offers, then you need to continuously search for better offers to get your relationship bank to beat.
One strategy is to scour the internet and take snapshots of teaser rates some lenders or marketplaces offer if you just can’t get anything official in writing. Teaser rates are often filled with onerous terms, but you can use them to your negotiating advantage.
Through the Financial Samurai community and through the FS Forum, I was able to crowdsource what other people got when they refinanced as well. In other words, it’s good to leverage a financial community whenever you’re doing something financially related.
3) Promise more assets. A bank wants its customers to have as much money with them as possible. Further, they want you to open up as many different accounts as possible to keep you as a sticky customer.
Examples of different accounts include: checking account, business checking account, savings account, mortgage account, wealth management account, home-equity line of credit, and a personal line of credit.
The more money you can bring over to the bank and the more accounts you can open, the more attractive your mortgage interest rate offer will be.
Banks have different tiers based on how much you have. For example my bank has one tier if you have at least $250,000 in assets with them. The next tier is if you have $500,000 – $1,000,000 in assets with them. Their highest tier is if you have over $1,000,000 with them.
4) Be ready to transfer funds away. Moving funds is a hassle, but you’ve got to be willing to move your assets if your relationship bank does not match or beat a competing offer.
You don’t have to close all your accounts. You just have to be willing to open up a new account with a different bank and go through the process of electronic funds transfer.
How I Failed At Getting The Lowest Mortgage Interest Rate
The best mortgage rate I could have gotten was 2.75% for a 7/1 ARM with no refinancing costs at Wells Fargo if I transferred over $1 million. If I transferred over $500,000, I could have locked in a 2.875% 7/1 ARM with no refinancing costs.
This rate was introduced to me by a Financial Samurai reader. The reader took a couple days to get back to my e-mail requesting for the lender’s contact information. As soon as I got the information I showed the rate offer to my existing relationship bank of 18 years, Citibank, to see if they could match.
I had just locked in my 3% rate with Citibank, which I thought was pretty good after the 10-year yield declined to 2.45% from 3.2%, but had not given them approval to start the process yet.
Important: You’ve always got time to make a final decision after you verbally agree to lock. Nothing is official until you sign an “approval to proceed” document. Do not let banks bully you into proceeding right away. Instead, use this window to see if you can get a better rate elsewhere or see if mortgage rates decline further.
Surprisingly, Citibank told me they could not match the rate even though they said I could probably get 2.875% with minimal closing costs if I locked with them when I did at 3%. When I verbally agreed to 3%, they said they were going to have a special promotion the following week to get me down to 2.875%.
I was led on.
I told them I was going to move over $1 million in assets to Wells Fargo if they didn’t at least match the 2.875% rate. The mortgage lender said he’d go to the head of mortgage lending in San Francisco to see if he could get me down to 2.875%.
I waited another day, and the Citi mortgage head said he, unfortunately, still couldn’t match 2.875%. At least he gave me another seven days to decide whether I should refinance with Citibank at 3%. Now I was much more motivated to work with Wells Fargo.
It took about another day and a half for the Wells Fargo mortgage officer to get back to me. We spoke at around 5:15pm. He said I could absolutely refinance to 2.75/2.875% if I brought over $500,000/$1,000,000 in funds. But first, I had to send him some common documents such as my W2, 1099s, rental statements, K-1s and so forth.
I got back to Wells Fargo at around 7:30pm and he said he’d review the documents and continue our dialogue the next morning. He believed we didn’t need to rush because rates looked unchanged that evening. I agreed.
When he called me the next morning at 10am, he told me the bad news. His bank informed him as of that morning, they decided to discontinue their special mortgage rate promotion! There was just too much demand.
Do I have terrible timing or what?
But of course, he said if I wanted to refinance with him I still could. The rate would no longer be 2.75/2.875% with no fees but 3%/3.125% with no fees. Uh huh.
No thank you! I got bait and switched again. If I’m going to get bait and switched, I might as well do business with my OG bait and switcher bank.
Luckily, I didn’t waste too much of my time because the documents I gathered for Wells Fargo were necessary for my refinance with Citibank. I simply forwarded them over.
The Refinance Rate Is Good Enough
So there you have it. While I was busy writing articles encouraging readers to refinance during a flat or inverted yield curve, I wasn’t spending enough time aggressively trying to refinance my own mortgage.
I put too much faith in Citibank to match the better offer. This cost me time and motivation with the competing bank. Nor did I pounce hard enough on the 2.75%/2.875% offer with Wells Fargo because I admittedly didn’t want to move my funds. If the rate was 2.5%/2.65%, I probably would have locked in.
Wells Fargo’s offer was a special situation because their CEO had just resigned due to a lot of financial shenanigans that went on under his watch. They needed to drum up business and regain some faith in the community.
Also, I got a 10/1 ARM instead of a 7/1 ARM. Therefore, I have three more years of peace of mind, which also makes me feel slightly better about my higher rate.
If I pay off my new 3% mortgage in five years, my blended 10-year mortgage rate will be 2.75%. Not bad. Further, my monthly payment declines by $800, which is a nice cash flow increase in case the economy turns south.
Finally, I’m happy several readers e-mailed in saying they succeeded in refinancing to a lower mortgage rate after I published my series of articles. Helping readers save money is the best!
I hope everyone can take advantage of lower mortgage rates. We’ve headed back down to 5-year lows.
Take advantage of lower rates. Check out Credible, one of the largest online lending platforms today that will get lenders to compete for your business. Fill it your needs and get real quotes from qualified lenders in under three minutes. The process is easy and free.
Update 2020: With the collapse in interest rates, I was able to renegotiate terms and get down to 2.625% with all fees baked in plus a $500 credit! Check the latest mortgage rates folks.