Barbara Corcoran Reveals How Being a Bank Client Can Land You a Mortgage Discount
With the average 30-year fixed-rate mortgage still sitting at over 7%, according to Freddie Mac, many prospective homebuyers are struggling to find a home and a mortgage that fits their budgets. But as “Shark Tank” star and real estate legend Barbara Corcoran shared in a recent “Good Morning America” segment, there’s an often-overlooked way to save a little bit of money on your mortgage.
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What many people don’t realize is that if you go to your bank where you’re already a client, you can usually get a 0.25% reduction in your mortgage rate if you get your mortgage through that bank.
“It doesn’t sound like a lot, but at least it helps,” said Corcoran.
This reduced mortgage rate is known as a relationship discount. Some banks even offer bigger cuts, like a 0.50% rate reduction or more for good customers.
Suppose you bought a $400,000 home with a 20% down payment. Without factoring in other expenses like property taxes and insurance that your mortgage provider might collect and put into escrow, your monthly payment would be $2,128.97 at a 7% interest rate for a 30-year fixed-rate mortgage. But at 6.75%, your monthly mortgage payment would be $2,075.51, according to calculations from Mortgage Calculator.
That means you could save $641.52 per year in this scenario just by getting that 0.25% relationship discount. And if you happen to find a 0.5% relationship discount, you could save $1,276.20 per year for the same home.
Even if that’s not a life-changing amount of savings, it could be a nice cushion — like if you want more spending money to furnish your new home or want to build up more reserves to pay for maintenance.
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Other Ways To Reduce Your Mortgage Rate
In addition to getting a relationship discount, there are other ways to potentially reduce your mortgage rate.
One option is to pay points, which means paying your mortgage provider an upfront amount in exchange for a lower interest rate. One mortgage point generally costs 1% of the total loan amount. So, if you took out a $200,000 mortgage, you could pay $1,000 upfront to reduce your mortgage rate by 0.5%.
Depending on your mortgage details, paying points could be worth it — especially “if you plan to keep your loan for a long time,” per the Consumer Financial Protection Bureau.
Another way to reduce your mortgage rate could be to get the seller to agree to a rate buydown. That involves the seller paying points to reduce your mortgage rate, rather than the buyer having to pay these upfront costs. Some sellers might be willing to do so to move deals forward, though in many areas, real estate conditions still favor sellers (for now).
Lastly, as Corcoran mentioned during her “Good Morning America” appearance, you should shop around for the best mortgage rates. It sounds simple, but comparing your options could help you find a lower rate that saves you a lot of money over the course of your mortgage.
And while you might think you can always refinance later, no one knows for sure whether mortgage rates will drop, and refinancing typically comes with costs. So, you likely want to focus on securing a great mortgage rate initially.
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This article originally appeared on GOBankingRates.com: Barbara Corcoran Reveals How Being a Bank Client Can Land You a Mortgage Discount
