Having an existing relationship with a bank is something that many people believe can help them get a better mortgage rate.
But does it make a difference? The answer is not straightforward, as there are many factors that come into play when determining mortgage rates.
In this article, we will explore the potential impact of having a relationship with a bank on your mortgage rate.
What is an Existing Relationship with a Bank?
Before diving into whether a relationship with a bank can impact your mortgage rate, let’s define what we mean by an “existing relationship.”
This could include having a checking or savings account with the bank, having a credit card or loan with the bank, or having investments or other accounts with the bank.
Essentially, it means you have an ongoing financial relationship with the institution.
The Pros of Having an Existing Relationship
1. Better service
One of the main benefits of having an existing relationship with a bank is that they may be more willing to work with you to secure a good mortgage rate.
This is because they already have a relationship with you and know your financial history.
However, this can help them assess your risk level and determine whether you are a good candidate for a mortgage.
2. Discounts
In some cases, banks may even offer special discounts or incentives for customers with an existing relationship.
3. Hassle-free lending process
Another advantage of having an established relationship with a bank is that it can make the borrowing process much simpler and faster.
When you already have an account with a bank, you may be able to apply for a loan online, saving you time and hassle.
You may also be able to skip some of the required paperwork when applying for a loan from a new bank.
Additionally, if you have a good track record with your bank, they may be more likely to approve your loan application quickly.
4. Help build a credit history
Another pro of having an existing relationship with a bank is that it can help you build your credit history.
When you have a bank account, you have a financial history that credit bureaus can track and evaluate.
Maintaining a positive relationship with your bank and using your accounts responsibly can build a strong credit score over time.
This can be especially important when securing a loan or credit card.
Having an existing relationship with a bank can also give you access to unique financial products and services.
5. Special offers
Many banks offer special accounts or products to their existing customers, such as high-interest savings accounts or rewards programs.
By taking advantage of these offers, you may be able to save money or earn rewards that you wouldn’t have access to otherwise.
6. Security
Finally, having a relationship with a bank can provide you with a sense of security and stability.
When you have an account with a bank, you know that your money is safe and protected.
You also have access to customer service representatives who can help you with any questions or concerns that you may have.
This can give you peace of mind and help you feel more confident in your financial decisions.
The Limits of an Existing Relationship
However, a relationship with a bank does not guarantee a better mortgage rate.
Banks must follow strict lending guidelines and consider several factors when determining their mortgage rates.
These factors include your credit score, debt-to-income ratio, employment history, and the property’s value.
In many cases, these factors may be more important than your existing relationship with the bank.
It’s also important to note that different banks have different policies regarding mortgage rates.
Some banks may be more willing to offer discounts or incentives to customers with existing relationships, while others may not have specific policies.
It’s always a good idea to shop around and compare rates from multiple banks to ensure you get the best deal possible.
How to Improve Your Chances of Getting a Better Rate
If you want to increase your chances of getting a better mortgage rate, you can do a few things.
1. Improve your credit score
Focus on improving your credit score and reducing your debt-to-income ratio.
This factor is a key determinant of your mortgage rate, and having a good credit history can go a long way in securing a lower rate.
2. Check different lenders
Another way to improve your chances of getting a better mortgage rate is to shop around and compare rates from different lenders.
This can help you find the best deal for your specific financial situation.
It is important to note that shopping around for rates should be done within a short period of time, typically within 30 days.
This is because multiple inquiries on your credit report could negatively impact your credit score.
3. Have a down payment
Having a larger down payment can help you secure a better mortgage rate.
This is because putting more money down shows the lender that you are committed to the investment and can decrease the risk of default on a loan.
It can also help you avoid paying for private mortgage insurance (PMI), which can add extra cost to your monthly payment.
4. The type of mortgage
Another factor affecting your mortgage rate is the type of mortgage you choose.
Fixed-rate mortgages typically have higher interest rates than adjustable-rate mortgages, but they offer the security of a steady payment amount.
Adjustable-rate mortgages can have lower initial interest rates but can fluctuate over time, making it difficult to predict your monthly payment amounts.
It is important to consider the pros and cons of each option and choose the one that best suits your financial situation and goals.
Knowing the current market conditions when applying for a mortgage is important.
Interest rates can fluctuate based on economic trends, so waiting and applying for a mortgage may be beneficial when rates are low.
This can help you secure a lower rate and save money over the life of your loan.
5. Use credible brokers
Finally, working with a reputable and experienced mortgage broker or loan officer can help you navigate the process and increase your chances of securing a better rate.
They can provide guidance, help you understand the terms and conditions of the loan, and negotiate on your behalf.
Conclusion
Having an existing relationship with a bank can potentially help you secure a better mortgage rate, but it is not a guarantee.
Banks have to follow strict guidelines and consider many factors when determining mortgage rates, and different banks have different policies in place.
Ultimately, it’s important to research and compares rates from multiple banks to ensure you get the best deal possible.
By improving your credit score and providing detailed financial information, you can increase your chances of getting a great deal on your mortgage and achieving your dream of homeownership.
