Think high mortgage rates are just a sad fact of life these days? A new analysis of more than 1,000 lenders by homebuying site Tomo Mortgage suggests that the rate you get really does vary based on where you get it. And although the difference might seem slight when it’s half a percentage point, it can add up fast when buying a house, now more than ever.
A look back: In 2018, analysts found that lenders with higher “rip-off” rates (marked on the chart above in orange) cost their borrowers about $80 per month more than lenders offering lower rates for a comparable mortgage (marked in green). That difference isn’t too bad, but if you fast-forward to today, that overpayment gap has widened to $287 per month. All for the same loan, same borrower profile, and same property, just at a higher rate or overall cost thanks to tacked-on fees.
“Mortgage rates between different lenders vary more than many people realize,” warns Sam Lanfear, SVP of revenue and customer education lead at Tomo. And even with the exact same rates, he adds, “You’ve got to be cautious of the rates you see advertised since these can often be loaded up with points and fees, and these fees might not be reflected in the APR calculations in the same way.”
Only why? The reason behind this wide range in what lenders charge is, “Every mortgage lender has a different strategy for lending money and a different appetite for risk,” explains Nicollette Chapman, SVP of National Sales, Mortgage Data Solutions at Zonda. This is particularly true when it comes to investment properties. “While one bank may be averse to doing loans on investment properties, others offer aggressive financing terms.”
In fact, investors tend to get hit with higher rates as it is. “Investment property loans typically come with rates usually 0.5% to 1% more than those for primary residences,” points out Dani Beit-Or, founder/owner of real estate investment site SimplyDoIt.
Bottom line: Although some lenders may say, “We don’t set the rates,” make sure to get loan estimates from a few lenders so you can compare the costs and not be that chump who overpays purely because you were too lazy to shop around.
How to get the best rates
One somewhat easy way to explore all your options is to work with a broker. “They will be able to take all of your information and do the shopping around for you so that you don’t actually have to do much on your end other than wait for what they find,” says Seamus Nally, CEO of TurboTenant.
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Or if you prefer to do the legwork yourself, hone in on smaller lenders, which tend to be more investor-friendly. “The absolute best rates and experience are going to come from a local community bank that keeps the paper in-house, meaning they don’t resell the debt on the secondary market,” suggests real estate investor Ryan Dossey, co-founder of SoldFast. “I like to use ICBA.org to find local banks when I enter a new market.”
In addition to shopping around, you can also pit lenders against one another while negotiating. “Most investors hear ‘shop around,’ but shopping isn’t negotiating. Negotiating is where the real wins happen,” argues Florida-based real estate investor and educator Rod Khleif. “Don’t just compare rates; make lenders compete for your business. If you have strong financials and a solid deal, you’re the prize, and you’d be shocked at what’s negotiable when lenders know they might lose you to someone else.”
And don’t forget: Rates aside, make sure that the rest of the loan works for you, too.
“There are several financing options available to investors, including hard money loans, non-qualified mortgage loans, and conventional loans,” says Elizabeth Karwowski Sdoucos, a member of HUD’s Housing Counseling Federal Advisory Committee. “While shopping around for the best rate is important, what’s even more critical is being an educated investor who understands the loan options available and the right questions to ask. The best mortgage isn’t just about securing the lowest rate; it’s about finding the right loan structure that supports your financial goals, investment strategy, and long-term profitability.”