How To Fail At Getting The Lowest Mortgage Interest Rate Possible

How To Fail At Getting The Lowest Mortgage Interest Rate Possible
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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. As a result, let me teach you how to fail at getting the lowest mortgage interest rate possible.

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 19 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. Now in 2022, the expansion is getting killed again as the Fed aggressively hikes rates further.

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%.

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.

Steps To Getting A Better Mortgage Rate

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 online 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.

Bait And Switch With Citibank

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.

Trying To Find A Better Mortgage Rate With Wells

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 took advantage of lower mortgage rates in 2020 and 2021. With higher mortgage rates in 2022, you may want to take out an adjustable rate mortgage to save instead.

I've been taking out ARMs since 2015 given interest rates are on a 40-year downward slide. Why pay a higher interest rate than you have to? The average homeownership duration is about 10-11 years. Therefore, it's best to get a 10/1 ARM instead. Match durations and save.

nvest In Real Estate More Strategically

Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. 

The combination of rising rents and rising real estate prices builds tremendous wealth over the long term. Meanwhile, there are more ways to invest in areas of the country where valuations are lower and net rental yields are higher thanks to crowdfunding. 

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. The real estate platform has over 300,000 investors and manages over $3 billion. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.

Real Estate Crowdfunding Dashboard

I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000. I've received about $500,000 in distributions from private real estate funds so far.

27 thoughts on “How To Fail At Getting The Lowest Mortgage Interest Rate Possible”

  1. Millionaire Mob

    I’ve learned so many things here by reading this article, including reading the comments of how they felt. Great article! Keep sharing!!

  2. Honestly I completely disagree with all of this?


    Because no one then a small majority actually knows their rate at the end of the day, and 80% of people who actually refinance will never pay off their home. So this idea to refinance to save is bad advice. People need to get out of debt and stay of debt.

    Your mortgage interest rate is not why you can’t pay a $500 expense in cash America, it’s because you have financed you home, car, college, vacations etc. if you didn’t finance your car and vacations, your college would be done.

    Also I hear people say “I don’t have any debt, just my mortgage…” but they use their home to pay off their car that would be paid off in 6 yrs, is now amortized over 30?! Which again proves a kink in the wheel.

    My advice: forget the rate, save your money, buy a home you can afford and start paying off all your debt.
    ••If you never refinance your home YOU will 100% of the time pay off your mortgage ••

    1. We have been lucky to have the low interest rates of the recent past.
      I have a book called “When Interest Rates Rise” this walks through why we have had low interest rates and where we can expect them to go. It takes a personal finance approach to describing this, it is not an overly complicated approach. The origin of all interest rates, the Federal Funds Rate, as been decreasing for 34 years and is now increasing!

    2. My only argument here is that if you are capable of reducing the overall terms of your loan (not incurring any additional debt other than paying off the original principle on the mortgage), and cash in on the low interest rates right now you should refinance. I recently refinanced after 11 years in on a 30, to a 15 year fixed rate, and cut 2 points off of my rate. Even with closing fees, I’ll catch up to my old principle balance in just over a year and will be killing it moving forward

  3. Would it be better to work on a refinance now or 6 months down the line if we feel that interest rates will go down?

    1. If you feel interest rates will go down in 6 months time, then definitely wait. But nobody knows the future.

      For me, my 5/1 ARM is resetting in two months time and it takes about 60 days to refinance, so the timing worked.

  4. Interesting read. When I think about the hassle of searching, filling out forms, changing banks, etc. I’m still happy that I’ve 5 more years before I can/want to refinance. However, not so happy about my interest rate of 4.3% haha, but 5 years ago that was a good deal.

    The type of mortgage that I have and was very common in The Netherlands (no repayment of 50% of the loan until maturity) is to use a blocked savings account to save up until you’ve reached the loan amount. This savings account generates the same interest rate as the interest rate on the mortgage (so effectively 4.3% risk and tax free). In this case I save every month, enabling to payoff the mortgage at maturity. As a result, because I don’t pay off my mortgage until maturity, I maintain the full tax deduction of my interest expenses of 100% of my mortgage. Because of this structure the benefits of refinancing now are very low or even negative.

    Especially since I plan to save up to 50% of my mortgage taking fully advantage of my mortgage structure in the coming 5 years…

    So yes, the Americans are not the only ones that have designed lucrative financial products. In the Dutch case however, the benefits are for the customers. How’s that for a change ;)

      1. Financial Chipmunk

        Inflation rate in The Netherlands is hovering between 2.2-2.8% this year. I need to run the numbers again to see what’s the most opportune moment to refinance considering the fact that the return on my blocked savings account is the same as the interest rate on my loan… and also my plans to speed up the tax-free and risk free savings process with stocks about to reach all time highs again..

  5. Oh man! And I thought my 15 yr, 3.125% wit .125 pts was good. Would have loved to gotten a sub three!

  6. When you say $100K-$1M with the bank you mean in terms of savings / checking accounts / CDs?

    I suppose this would only happen when you’re out of the stock market due to long in the tooth bull markets / trend decision, right? Why else would you have that much money sitting earning 0-3%?

  7. The Wells Fargo offer still exists. For every $250k you bring it shaves off 0.125% off the base rate up to $1 million. I just closed a home with the maximum discount with them.

    1. I was trying to find anyone online with similar experiences, glad I found this thread. We’re about to close and waiting for over a week for this discount to clear, but the department doesn’t provide updates and we’ve now extended past our promised closing date (frustrating the sellers, who are living out of an Airbnb). It looks like we’ll be closing without the discount because WF didn’t start the process early enough and provided poor expectations, with the sellers now threatening to move to a backup offer.

      So, if anyone is expecting this discount, at least with the current spike in real estate sales and refinancing, anticipate a large delay from Wells Fargo.

  8. Hi Sam, Great article – pretty timely for me – however I am looking to get a couple blanket loans for my properties and pull out some equity (and pay off some properties :). I will be shopping both local and national lenders – any thoughts / recommendations on commercial lenders with good track records on loans from 1-2M and 4 or more properties?

    I will check the FS Forum for any clues.

  9. Nice job on your refinance! You’ve really refinanced a lot over the years. I bet that adds up to a ton of savings. Even though you didn’t get the lowest rate you did your best! And you’ll still be saving money so that’s a solid win in my book. Great job!!

  10. The best rates i see for a 10/1 ARM is around 3.625. Best rates for 15 year fixed is around 3.25 with points. Where are you guys seeing these 3% rates to even go back to your relationship bank to match or compete with ?

    1. It’s the big banks. Interesting why I’m not seeing BOA mentioned here. Certainly the most aggressive in my opinion.

  11. Hi Sam – I am currently going through a series of re-financing as well. We have a banking relationship with Citi and assumed Citi would be able to provide the best rate possible for us. We hesitated to look anywhere else.

    Then a couple of things happened which led me to need to deal with a couple of other banks. Lo and behold, those banks were able to offer better terms than Citi but I already locked in at least 1 financing with Citi. Therefore, it makes it harder to go to the other banks for the other re-financing (given the need to hit asset thresholds now at numerous banks versus with 1).

    Lesson learned. I should have comparison shop beforehand and not just assume my banking relationship will offer me the best rate right off the bat.

    With relationship pricing on jumbo primary, 2.75% 10/1 ARM with no closing costs (which amounts to 50bps rebate) is the best I’ve seen.

  12. Where do you recommend getting commercial loans at? Any idea on the rates for those I should be targeting? I’ve been flush with cash for years and have only ever done all cash offers but finally thinking of getting commercial loans on some larger deals and maybe refinancing out some of my buildings to grow the empire.

    Commercial being for commercial real estate vs residential real estate like the loans you referenced here. Thanks!

    1. Find a good commercial mortgage broker. Depending on what type of property a life insurance company, or CMBS might be better.

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