How to get the best mortgage rate as competition for business rises among lenders

As mortgage rates rise and fewer homeowners consider refinancing, mortgage lenders are growing more competitive to win the business of borrowers. It's important for borrowers to weigh their options carefully to avoid being locked into a loan that isn't the best fit for them, according to Phil Shoemaker, mortgage company Homepoint’s president of originations. 

Conversely, during the height of the COVID-19 pandemic and as interest rates dropped, lenders were flooded with requests from homebuyers and homeowners looking to take out a loan amid sub-3% rates for a 30-year fixed-rate mortgage. During that time, loan officers had automatic email replies warning that it could take up to 24 hours to respond, and answering phone calls became a struggle. Many even began outsourcing part of the process, unable to keep up with the surge of new mortgage demand.

However, circumstances have changed, and mortgage rates are once again increasing, recently hitting a 3.56% annual percentage rate (APR), according to the latest Freddie Mac data. Now, lenders who increased their staff will struggle as demand once again slips back down to pre-pandemic levels due to affordability challenges. Dan Green, principal at consulting firm The BlackFin Group, even estimates that the mortgage industry could shed up to 100,000 jobs this year, according to an op-ed he wrote for HousingWire. As lenders begin to compete for a more limited number of borrowers, it could change the borrower experience. 

One way homeowners and homebuyers can ensure they are receiving the best advice and interest rate is to compare multiple providers. Visit Credible to find your personalized interest rate on a purchase or refinance while current rates remain low without affecting your credit score. 

EXPECTED FED RATE HIKE PUSHES MORTGAGE RATES HIGHER AS INFLATION SURGES

‘Optionality’ is important for getting the best loan

Shoemaker explained that as the lending market becomes more competitive, lenders could begin to offer loans that are not necessarily the best fit for a borrower in order to get them into a loan.

"It's critically important that they're working with someone that is able to provide them optionality," Shoemaker said. 

Shoemaker, who is president of a wholesale lender, or a lender that funds mortgage loans and then sells them to third parties, said the wholesale model could benefit consumers. With this model, a mortgage broker will search among multiple lenders to find borrowers the most favorable loan type through various lender offers, rather than going through one lender with a more limited product selection.

Borrowers can also research lenders themselves by way of an online marketplace to compare options. Visit Credible to compare multiple mortgage lenders and loan options at once and find the one with the best mortgage lender with good interest rates for your loan type.

FHFA INCREASES FEES FOR HIGH-BALANCE LOANS BACKED BY FANNIE MAE, FREDDIE MAC

Managing good interest rate advice

As competition grows, mortgage lenders could pressure consumers to lock in their rates. And while there is a sense of urgency to do so since interest rates are rising, borrowers should also ensure they aren’t succumbing to any lender pressure and making a costly financial decision.

"Anytime someone is pressuring you to do something faster than you're wanting to do it, I feel like that's always a red flag," Shoemaker said. "Yes, there is a sense of urgency around rates going up, I can totally understand that. But waiting a day or waiting overnight to make a decision to make sure that you're making the best decision for whatever your goals are or for your family, that's always something I would definitely advocate for."

Interest rates are on the rise and predicted to continue rising through the remainder of 2022 and into 2023. However, Shoemaker said consumers should choose the best option for their family without feeling added pressure from originators to act now. He explained that taking a night to sleep on a decision should not be discouraged.

"Any situation where an originator's trying to pressure a consumer to move now, and the consumers feel like they're not getting the right level of information, or they're just not ready to, then that's usually a sign that maybe they should talk," he said. "They should get some perspective and look online and talk to another originator."

If you are considering buying a home or refinancing your current loan, contact Credible to speak to a home loan expert and get all of your questions answered.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.