How-to-get-the-best-mortgage-rate-possible
00:00:00.000 | Hello, everybody.
00:00:01.000 | It's Sam from Financial Samurai.
00:00:02.880 | And in this podcast, I'm going to share
00:00:04.800 | how I failed at getting the lowest mortgage interest
00:00:08.400 | rate possible.
00:00:10.000 | So in the month of April 2019, the yield curve inverted.
00:00:16.000 | And that's great news for mortgage holders
00:00:18.600 | because we get to refinance our mortgage at a relatively better
00:00:23.240 | rate.
00:00:23.920 | So short-term rates are higher than long-term rates.
00:00:28.680 | And therefore, you must take advantage.
00:00:30.320 | Everything is relative in finance.
00:00:32.200 | So I was going to say that I got the best mortgage rate possible,
00:00:36.080 | but I ended up failing.
00:00:38.040 | I didn't get what I wanted and what I thought I could get.
00:00:41.800 | And I wanted to run you guys through why.
00:00:44.760 | So before I run you guys through why I failed,
00:00:48.160 | I want to share, in general, the best practices for how to get
00:00:51.440 | the best mortgage rate possible.
00:00:53.680 | The key to getting better pricing
00:00:56.080 | is to always generate competition.
00:00:58.160 | For example, the more employers compete for your services,
00:01:01.640 | the more you will get bid away for a higher salary.
00:01:04.480 | And the more likely your employer
00:01:06.080 | will match that bid away price or just give you a raise.
00:01:11.560 | I still remember sitting in the living room of a house I wanted
00:01:14.200 | to buy back in 2004.
00:01:16.240 | The asking price was $1.55 million,
00:01:19.400 | and it had been sitting on the market for two months.
00:01:22.480 | I was tempted to offer $1.45 million because why not?
00:01:26.440 | You've been sitting for two months.
00:01:28.040 | Obviously, nobody's interested.
00:01:29.640 | And this was pretty unusual, even for San Francisco
00:01:33.040 | at that time.
00:01:34.400 | And I had made up my mind to lowball the sellers
00:01:37.360 | when in walked a doctor couple at the open house.
00:01:41.080 | They sat in the dining room and marveled
00:01:43.120 | at all the details of the house--
00:01:44.760 | the high ceilings, the wainscoting, crown moldings,
00:01:47.840 | and so forth.
00:01:49.320 | So seeing them instantly created this FOMO,
00:01:53.800 | fear that I was going to miss out.
00:01:56.440 | My desire to lowball instantly faded away
00:01:59.960 | as they began talking.
00:02:01.880 | So instead, I offered $1.525 million, or 75% more
00:02:06.960 | than I had originally planned.
00:02:09.920 | And I still wonder to this day if my emotions
00:02:11.840 | got the best of me.
00:02:13.200 | But thankfully, it all worked out in the end
00:02:15.080 | because I was able to sell that house in 2017 for much more
00:02:18.760 | than I purchased it for.
00:02:20.800 | So here are the steps I take to get the best mortgage
00:02:22.880 | rate possible.
00:02:24.040 | I've refinanced, I think, eight times, maybe more,
00:02:28.560 | four properties since 2003.
00:02:30.960 | I mean, it's been kind of a refinance bonanza
00:02:34.200 | for the business, for the lending business,
00:02:36.800 | since interest rates have been coming down basically
00:02:40.440 | since the late 1980s.
00:02:42.600 | So there are basically four steps.
00:02:44.600 | First step, get written official quotes from competing lenders.
00:02:49.480 | Verbal offers really don't mean much at all.
00:02:52.400 | In all my experience, every single lender
00:02:54.680 | is like, hey, show me a written offer,
00:02:56.960 | and we'll match or beat it.
00:02:59.440 | And the easiest way to do that is to go online and get quotes.
00:03:02.560 | And then people will contact you,
00:03:04.000 | and then they're going to email you and say, hey,
00:03:06.000 | we can do this for you at this price.
00:03:08.320 | Two, use those quotes to contact your relationship bank.
00:03:12.520 | Your relationship bank is your main bank,
00:03:14.760 | the one where you have your checking account tied to
00:03:16.840 | or your work pay stub paycheck that
00:03:21.120 | gets automatically credited every single, what,
00:03:24.480 | two weeks or every single month.
00:03:26.680 | Your relationship bank is the key
00:03:28.240 | to getting the best mortgage rate possible.
00:03:30.280 | They have a lot of your money, and you probably
00:03:32.280 | have multiple, multiple accounts with them.
00:03:34.320 | They certainly don't want to lose your business.
00:03:37.120 | And you must present that written offer.
00:03:40.280 | And if you don't have a competitive written offer,
00:03:42.400 | you've got to get one.
00:03:44.160 | And one strategy-- this is an interesting strategy--
00:03:46.080 | is to scour the internet and take
00:03:47.520 | snapshots of teaser rates some lenders or marketplaces
00:03:51.100 | offer if you just can't get anything
00:03:53.840 | official in writing or email.
00:03:56.400 | Now, these teaser rates are interesting
00:03:58.200 | because they're real, but just like when you go up
00:04:00.480 | and show at the car dealership for that really cheap car
00:04:03.640 | that they've been advertising, they're going to say, well,
00:04:06.360 | it's already been sold.
00:04:07.440 | They're just trying to get you in.
00:04:08.860 | So the teaser rate was probably real at one point,
00:04:11.800 | but once you go and ask for that rate,
00:04:14.200 | it's probably not going to be there.
00:04:15.700 | But you can use that rate to your advantage.
00:04:18.880 | Three, promise more assets.
00:04:21.820 | A bank wants its customers to have as much money with them
00:04:24.740 | as possible.
00:04:25.900 | Further, they want you to open up
00:04:27.300 | as many different accounts as possible to keep you
00:04:30.340 | as a sticky customer.
00:04:31.460 | This is cross-selling, one-on-one.
00:04:33.900 | So different accounts include checking account, business
00:04:36.380 | account, savings account, mortgage account,
00:04:38.860 | wealth management account, home equity line of credit,
00:04:41.580 | and a personal line of credit, which I don't really
00:04:43.780 | recommend because the interest rate is a little bit high.
00:04:47.180 | The more money you can bring over to the bank
00:04:49.360 | and the more accounts you can open,
00:04:51.160 | the more attractive your mortgage interest rate offer
00:04:53.640 | will be.
00:04:55.080 | Banks have different tiers based on how much you have.
00:04:58.280 | What I've noticed is three tiers, basically.
00:05:01.560 | The first tier is if you have over $250,000 in assets
00:05:05.920 | with them.
00:05:06.520 | That includes your investments.
00:05:08.200 | Second tier is if you have over $500,000 in assets with them.
00:05:12.280 | And the highest tier for the best pricing
00:05:14.160 | is if you have over $1 million in assets with them.
00:05:18.720 | And then finally, be ready to transfer funds away.
00:05:22.360 | The person who is willing to walk away
00:05:25.720 | from any kind of transaction generally
00:05:28.400 | has the highest leverage because you're basically
00:05:31.980 | threatening to move your assets if you don't get the best price
00:05:35.040 | or don't even get the best match, right?
00:05:37.640 | So you better be able to walk the walk--
00:05:41.920 | what is it, talk the talk and then walk the walk and move.
00:05:46.000 | Money is really fungible nowadays.
00:05:47.560 | You can transfer money at the click of a button.
00:05:49.640 | Maybe it takes a couple of clicks.
00:05:51.160 | But whatever the case may be, you
00:05:54.100 | need to walk if they don't give you the best.
00:05:57.340 | You don't have to close all your accounts.
00:05:59.220 | You just have to be willing to open a new account
00:06:01.500 | with a different bank and go through the process
00:06:03.540 | of electronic funds transfer.
00:06:06.400 | So there you have it.
00:06:07.480 | Four easy steps, right?
00:06:09.220 | Well, I did all those four steps this time,
00:06:13.100 | and I didn't make it.
00:06:14.060 | The best mortgage rate I could have gotten
00:06:16.180 | was 2.75% for a 7-1 arm with no refinancing cost at Wells Fargo.
00:06:23.460 | Wells Fargo, if I transferred over $1 million.
00:06:26.380 | If I transferred over $500,000, I
00:06:28.800 | could have locked in 2.875% for a 7-1 arm
00:06:32.100 | with no refinancing costs.
00:06:34.760 | Unfortunately, none of this happened.
00:06:37.500 | The best I got was a 10-1 arm--
00:06:40.980 | not bad, 10-1 arm--
00:06:42.580 | but at 3% with about $3,000 in credits to closing.
00:06:49.060 | So I don't think it's going to be free,
00:06:51.460 | but it's going to be almost free.
00:06:53.740 | The better Wells Fargo rate was introduced to me
00:06:56.060 | by a financial samurai reader.
00:06:58.620 | The reader took a couple of days to get back to me by email
00:07:01.780 | after I asked about the lender's contact information.
00:07:04.740 | And as soon as I got the information,
00:07:06.940 | I showed the rate offer to my existing relationship bank
00:07:09.580 | for 18 years-- of 18 years--
00:07:11.620 | Citibank to see if they could match.
00:07:14.380 | I had just locked in my 3% rate with Citibank, which
00:07:18.020 | I thought was pretty good after the 10-year yield
00:07:21.020 | declined to 2.45% from 3.2%.
00:07:24.900 | But I had not yet given Citibank approval
00:07:28.980 | to start the process yet.
00:07:30.100 | So this is really important for folks looking to refinance.
00:07:33.980 | You've always got time to make a final decision after you
00:07:37.500 | verbally agree to lock.
00:07:39.460 | Don't let them bully you or pressure you
00:07:42.980 | into signing right away to give them approval to proceed.
00:07:47.020 | You have time.
00:07:49.060 | And time is really valuable when you're trying
00:07:51.540 | to get the best rate possible.
00:07:54.180 | So I used this Wells Fargo offer as leverage,
00:07:58.500 | and I showed it to Citibank.
00:08:00.320 | And surprisingly, they told me they could not
00:08:02.660 | match the rate, even though they said I could probably
00:08:06.420 | get 2.875% with minimal closing costs if I locked with them
00:08:10.700 | when I did at 3%.
00:08:13.220 | So when I verbally agreed to 3%, they
00:08:15.580 | said they were going to have a special promotion
00:08:18.140 | the following week to get me down to 2.75%, 2.875%.
00:08:23.780 | So when I asked them, and then I actually got this written
00:08:26.160 | offer, they said no.
00:08:28.140 | So in other words, I was totally led on, in my opinion.
00:08:32.540 | I told them I was going to move $1 million in assets
00:08:35.500 | to Wells Fargo if they didn't at least match the 2.875% rate.
00:08:40.540 | And the mortgage lender said, OK, fine.
00:08:42.580 | He'll go to the head of mortgage lending in San Francisco
00:08:46.260 | to see if he could get me down to 2.875%.
00:08:49.900 | I waited another day, and the city mortgage head said,
00:08:53.060 | sorry, he still couldn't match the 2.875%,
00:08:57.260 | even though he told me to show him a better offer.
00:09:02.820 | So at least he gave me another seven days
00:09:04.540 | to decide whether I should refinance with Citibank at 3%.
00:09:08.500 | Now I was much more motivated to work with Wells Fargo instead.
00:09:12.220 | It took another day and a half for the Wells Fargo mortgage
00:09:15.100 | officer to get back to me.
00:09:16.740 | We spoke at around 5:15 PM.
00:09:19.020 | He said I could absolutely refinance with them at 2.75%
00:09:22.140 | to 2.875% if I brought over $500,000 to $1 million.
00:09:26.740 | But first, I had to send him some common documents,
00:09:29.820 | such as my W-2, 1099s, rental statements, K-1s, and so forth.
00:09:35.060 | So I got back to Wells Fargo at around 7:30 PM,
00:09:37.860 | and he said he'd review the documents
00:09:39.500 | and continue our dialogue the next morning.
00:09:42.220 | I believed him.
00:09:43.820 | I said, OK, fine.
00:09:45.420 | He said there's no rush because rates
00:09:47.020 | looked unchanged that evening.
00:09:49.000 | And I looked, and yeah, that's fine.
00:09:52.500 | So when he called me the next morning at 10 AM,
00:09:55.260 | he said he had bad news.
00:09:56.820 | He said his bank informed him as of that morning
00:10:00.660 | they decided to discontinue their special mortgage rate
00:10:03.460 | promotion.
00:10:04.740 | There was just too much demand.
00:10:06.980 | And I was thinking to myself, come on.
00:10:08.580 | Are you kidding me?
00:10:10.460 | It's either I have the worst timing,
00:10:12.700 | or you're baiting and switching me.
00:10:15.420 | So he said, well, I'm sorry about this.
00:10:17.620 | I'm going to have a lot of difficult conversations
00:10:19.740 | with other clients.
00:10:21.020 | But if I still wanted to refinance with him, I could.
00:10:24.300 | The rate would no longer be 2.875% with $500,000
00:10:29.780 | in assets moved over.
00:10:31.540 | It'll be more like 3% or 3.125% with no fees.
00:10:36.420 | I was like, OK, you know what?
00:10:39.660 | Forget it, man.
00:10:40.980 | If I'm going to get bait and switched,
00:10:42.740 | I might as well go to the original gangster bait
00:10:45.180 | and switch bank, which is Citibank.
00:10:48.180 | So at the very least, luckily I didn't waste too much of my time
00:10:52.740 | because the documents I gathered for Wells Fargo
00:10:55.020 | were necessary for my refinance with Citibank.
00:10:57.820 | I simply forwarded that email to the Citibank mortgage officer.
00:11:02.700 | So there you have it.
00:11:04.020 | While I was busy writing articles encouraging readers
00:11:06.380 | to refinance during a flat or inverted yield curve,
00:11:09.580 | I wasn't spending enough time aggressively trying
00:11:11.900 | to refinance my own mortgage.
00:11:13.500 | I put too much faith in my relationship bank
00:11:16.020 | that they would match.
00:11:17.300 | Too much faith.
00:11:18.540 | This cost me time and motivation with a competing bank.
00:11:22.700 | I didn't pounce hard enough on the 2.75, 2.875 offer
00:11:28.380 | with Wells Fargo because, you know what?
00:11:30.820 | I admittedly didn't want to go through the hassle of moving
00:11:33.740 | my funds.
00:11:34.340 | I just wanted really to leverage them, to be frank.
00:11:39.180 | But you know what?
00:11:40.020 | Look, if the rate was more like 2.5% or 2.65%,
00:11:44.020 | I would have moved.
00:11:45.220 | I would have locked with Wells Fargo and transferred my money.
00:11:49.340 | So I hope everyone takes away from this podcast
00:11:52.100 | that timing is important.
00:11:54.100 | Timing is the reason why I produce these podcasts
00:11:57.540 | and I write these posts when there's an opportunity
00:12:00.260 | to save money.
00:12:01.180 | Because saving money is very concrete.
00:12:04.220 | Whereas investing money, you don't really
00:12:05.940 | know until the future whether you made a good investment
00:12:08.620 | decision today.
00:12:10.340 | And the other point is know that you have time.
00:12:13.580 | You have time when you verbally agree to lock
00:12:16.020 | to shop around that offer.
00:12:18.300 | Banks seem to be kind of ruthless.
00:12:20.260 | There's a lot of, hey, bringing you in with attractive rates,
00:12:24.380 | but then telling you the next day or the next week
00:12:27.220 | that they can't really match.
00:12:29.060 | So these guys are ruthless in terms
00:12:32.340 | of the way they do business.
00:12:33.980 | And they want to obviously maximize their profits.
00:12:36.980 | And you want to maximize your savings.
00:12:39.780 | So don't be afraid to negotiate.
00:12:41.340 | Don't be afraid to get other offers.
00:12:44.140 | And don't be afraid to pit each bank against each other.
00:12:49.540 | So good luck, everyone.
00:12:50.700 | Rates are still low, although they've been creaming up
00:12:52.980 | a little bit as the stock market continues to march higher.
00:12:57.540 | But there's nothing better than saving money
00:12:59.340 | and taking advantage.
00:13:00.580 | And I'm still a strong proponent of adjustable rate mortgages,
00:13:05.020 | because the average homeowner owns their home
00:13:08.020 | for about 8.3 years.
00:13:10.220 | And that's like the highest in a long, long time.
00:13:13.380 | So if you're going to go lock in for a 30-year fixed rate,
00:13:16.460 | that is not congruent with what the statistics say.
00:13:20.620 | So good luck, everyone.