If You Could Match That Interest Rate, Why Didn't You Offer It First?
By Mike Baker | The Rate Shop | NMLS #259076
Your lender couldn't offer you a better interest rate. Then you showed them someone else's offer.
Suddenly, they could.
My first question would be the same as yours: Why didn't you give me that deal upfront?
A mortgage lender may improve an offer by accepting a smaller profit margin through a competitive exception. That is different from the loan officer cutting their personal commission. But matching the interest rate does not necessarily match the deal. You also need to compare points, lender fees, credits, loan terms, and the rate-lock period.
After 17 years in mortgages, including years on the retail side before opening my own brokerage, I think buyers deserve to understand how this works.
What actually happens when a mortgage lender matches an offer?
A common scenario looks like this: you bring your loan officer a competitor's Loan Estimate. The loan officer takes it to a manager and asks for a competitive exception.
The company agrees to accept less on the loan to keep your business. That can make room for a lower interest rate, lower fees, a lender credit, or some combination of those.
The company is giving up part of its margin. The loan officer's agreed compensation generally stays the same. The CFPB's compensation-rule commentary specifically distinguishes a creditor changing terms to match a competitor from changing the originator's compensation for that reason.
That explains how a better offer can appear. It doesn't answer the question that bothers me: what happens to the buyer who never knows to ask?
A quick peek behind the curtain: mortgage compensation used to work differently
Before the compensation reforms following the financial crisis, parts of this industry felt like the Wild West.
A loan originator could have a financial incentive to put a buyer into a higher interest rate. A confident negotiator might get a very different deal from someone who assumed the first offer was the only offer.
Rules introduced after the crisis restricted compensation tied to a loan's interest rate or other terms. Key Federal Reserve restrictions took effect in 2011, followed by additional CFPB rules implementing Dodd-Frank. The point was to remove incentives to steer buyers into more expensive loans. The Federal Reserve explains that change here.
That did not make every lender's profit margin identical. It also did not make every lender offer the same interest rate.
How the company earns money and how an individual loan officer gets paid are two different parts of the picture.
Why do mortgage lenders have different interest rates and fees?
Mortgage companies have different expenses and different business goals.
Some have office leases, layers of management, large operations teams, employee benefits, and marketing departments. Some have ownership or shareholder expectations about profitability. Compensation plans are another part of the cost of running the business.
Those differences can affect the offers buyers receive.
One reason I opened The Rate Shop was to keep my overhead low and give myself the ability to offer competitive interest rates and closing costs.
No fancy office. No layers of assistants or an internal marketing department. My clients work directly with me, and I handle their loan from beginning to end.
As a broker, I can also compare options from multiple wholesale lenders.
My approach is to give you my best available deal upfront. You shouldn't have to negotiate with me to find out what I could have offered you in the first place.
That doesn't mean I will win every comparison. I have lost plenty of loans to another lender's better offer. If the comparison is fair and the lender can deliver, I respect that decision.
Matching the interest rate can still leave you paying thousands more
I have joked for years that you can have just about any interest rate you want, within reason. The question is what it costs to get it.
Here is a simple illustration using the same loan and the same interest rate:
Offer A: $1,200 administration fee, no additional points or origination fees. Total illustrated lender charges: $1,200.
Offer B: $2,500 administration fee, plus $5,000 in discount points and origination fees. Total illustrated lender charges: $7,500.
Offer B matches the interest rate but has $6,300 more in lender charges, before accounting for any credits. These are example lender charges, not a complete closing-cost estimate or a current offer.
Did they match the rate? Yes.
Did they match the deal? Absolutely not.
Look at Section A on page 2 of the Loan Estimate. That is where you will find origination charges, including discount points. Also compare other lender-required costs and the lender credits in Section J. The CFPB's Loan Estimate explainer walks through those sections.
APR is another useful clue. On otherwise comparable loans, the same interest rate with a higher APR can signal more financing costs. It is a reason to investigate the itemized fees, rather than stop at the rate.
If you want the broader checklist, read my questions to ask a mortgage lender.
Did the lender reduce its margin, or did the market improve?
Interest rates change daily and sometimes during the day. Comparing Monday's offer with Thursday's offer may tell you more about the market than either lender.
Compare the same loan type, loan amount, down payment, points, and lock period using offers obtained as close together as possible.
Then ask: “Did the market improve, did something change in my application, or did you approve a competitive exception?”
If a buyer tells me when they received an offer, I can review what the market was doing around that time. If the market improved, my available offer may have improved as well.
And check the rate-lock box at the top of page 1. A Loan Estimate does not automatically mean your interest rate is locked. If you expressly asked for a lock and the document still says it isn't locked, get that clarified immediately. Read more about when to lock your mortgage interest rate.
What should you ask when a lender offers to match?
You do not need to know the industry's vocabulary. Start with these questions:
Are you matching the interest rate AND the fees?
Are you adding discount points or other origination charges?
Are the lender credits the same?
Is the interest rate locked for the same period?
Can you show the revised offer in writing, including an updated Loan Estimate when applicable?
Can you meet my contracted closing date?
Do not let “we matched it” be the entire explanation.
Review the full payment, mortgage insurance, cash to close, and tax and insurance assumptions, too. A smaller estimate for property taxes does not make one lender's financing cheaper. The CFPB also recommends comparing offers and considering whether the lender can meet your closing timeframe. Its comparison guide is here.
Rate shop. But lender shop, too.
I believe in rate shopping. It's the name of my company, for heaven's sake.
But I also want you shopping for the person who will guide you through this purchase.
Will they answer questions clearly? Do their reviews describe reliable closings? Are they available when you actually need them?
Most people I work with tour homes and make offers on nights and weekends. Banker's hours don't always fit that reality.
Imagine finding a house on Sunday and needing to negotiate seller-paid closing costs. How much should you ask for? What if that home's property taxes are much higher than the estimate you started with?
You need updated numbers while you are making the decision.
A slightly lower interest rate matters. So does having a reputable lender who can get the loan closed and help you understand what you are agreeing to.
You do not owe a lender your business because they helped you
Sometimes a buyer chooses their bank because they already have a relationship there. Sometimes they choose me because they feel more comfortable with how I explained the options.
Either way, that choice belongs to the buyer.
Does losing a client sting? Absolutely. But I am not going to make you feel guilty for doing what you believe is best for your family.
I would rather leave you feeling respected. Maybe you refer a friend later. Maybe we work together on a refinance down the road. Treating someone well matters even when I don't earn their loan.
Quick answers about mortgage rate matching
Can mortgage lenders negotiate interest rates?
Some can improve an offer through a competitive exception. Compare the complete offer in writing, including points, lender fees, credits, and the lock period.
Does a rate match mean the lender was overcharging me?
It raises a reasonable question, but it does not prove that by itself. Ask whether the difference comes from a smaller margin, market movement, different loan assumptions, or additional upfront costs.
Does the loan officer take a pay cut to match a competitor?
In a typical retail-lender competitive exception, the company reduces its margin while the loan officer's compensation stays unchanged. The rules distinguish changing a creditor's offer from changing originator compensation to fund that concession.
Should I stay with the first lender if they match?
Choose based on the complete deal, your comfort with the lender, and their ability to close on time. You do not owe them your business, and a competing offer does not obligate you to switch.
You are protecting your family, not being difficult
We are talking about purchases that can run a quarter million dollars, half a million dollars, or more.
You aren't buying a stick of gum.
Wanting a fair deal from a reputable lender is not too much to ask. A loan officer who has your best interests at heart should welcome your questions.
If you are buying in my home market of the Kansas City Metro, or elsewhere in Kansas or Missouri, schedule a mortgage consultation with me. Bring the questions, the offer, and anything that doesn't feel clear.
Conversations are free. They shouldn't cost you peace of mind, and asking questions shouldn't leave you paying more points and fees.
