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Personal Finance > Banking
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Lower your credit card and refi costs
You have some wiggle room to negotiate two of your priciest expenditures.
February 7, 2003: 5:23 PM EST
By Jeanne Sahadi, CNN/Money.com Staff Writer

NEW YORK (CNN/Money) - You may hate haggling, but chances are good you hate throwing money away even more. Yet that's exactly what you do when you accept the interest rate on your credit card at face value, or settle for a less-than-competitive package when you refinance your home.

That's because interest fees add significantly to the cost of your original purchase. And they're often higher than they need to be.

Getting your rates lowered, however, isn't impossible, and in some cases it may not even take much persistence. Here's how:

Cut your Absolutely Preposterous Rate (APR)

Sixty percent of Americans carry credit card balances -- the average for a U.S. household with at least one card is nearly $8,400 at an average interest rate of 14.32 percent, according to CardWeb.com.

In a survey conducted by the Public Interest Research Group (PIRG), 56 percent of those surveyed got their credit card rates lowered simply by asking their credit card companies to do so. One toll-free phone call. That's all.

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Of those who succeeded, they were able to get their annual percentage rates (APRs) lowered from an average of 16 percent to 10.47 percent. If you're paying $200 a month on an $8,000 balance, lowering your rate by that much would save you $1,508 in interest and eight months of payments.

PIRG found there are several factors that affect your chances of getting your rate lowered: the length of your relationship with a credit card company (the longer the better); the credit limit on your card (the higher the better); and the balance-to-limit ratio on your card (the lower the better, which is to say maxing out is bad). Card companies also consider the balance-to-limit ratio on all your cards combined (again, the lower the better) and the number of times you missed a payment or paid late on any loan or credit card (never is best).

To bolster your leverage, PIRG recommends you suggest politely that should the company fail to lower your rate you'll consider taking your business elsewhere. (Don't worry, no one's going to hold you to it if you fail to get what you want.)

You might also get your credit card company to reduce or waive certain penalties if you feel they've been unfairly assessed. Take late fees, which have increased to as much as $35 and have entrapped more consumers as grace periods have gotten shorter. If you get your first late fee because your payment was received a few days late, call and complain, said CardWeb.com's founder Robert McKinley. Often a company will let it go.

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One person surveyed by PIRG had missed one payment six months before the survey, and as a result her credit card issuer increased her APR to a punishing 31.12 percent. After one phone call, the company lowered her rate to 14.65 percent. That means on the $2,900 balance she was carrying at the time she would save nearly $11,000 in interest payments if she paid only a 3 percent minimum every month.

Generally speaking, if you've been a good customer with good credit, "most companies will want to keep your business," said Brad Dakake, author of the PIRG report, Deflate Your Rate.

Refine your refi

The same principle applies when it comes to refinancing your home.

"Your first call should be to your existing lender," said Keith Gumbinger, vice president of mortgage tracker HSH Associates. A lender who knows you're a good customer and doesn't want to lose your business may work the hardest to keep it, especially since bringing in a new customer to replace you can be costly. What's more, your existing lender may have more flexibility to offer you the most economical deal.

That said, you should always shop around. Doing so will give you the best leverage for negotiating the lowest rates and fees for yourself, whether you stay with your existing lender or not, said Bud Carter, a consultant to the Mortgage Bankers Association.

While you're looking, be sure to compare APRs, not interest rates alone, cautioned Joseph V. Fierro, chief operating officer of The New York Mortgage Co. That's because the APR is the true annual cost of the loan to you, including the interest rate, points and loan fees. The narrower the spread between the interest rate on your loan and the APR, the better the deal. In other words, a refi package with a 7 percent interest rate and a 7.5 percent APR is more attractive than a refi package with a 6.75 percent interest rate and an 8 percent APR.

If you're looking to lower your rate, but don't necessarily wish to change the number of years left on your mortgage, you might also ask your lender if you can do a loan modification, which is the quickest, cheapest form of a refi. At a cost to you of less than $500, the lender agrees to lower your interest rate for the remaining term of your loan. Loan modifications are not possible, however, if your lender has sold your loan into the secondary mortgage market.

If your lender cannot provide a loan modification, ask about a streamlined refi. The application and closing process is abbreviated since many of the documents you'd normally need for a refi are already on record and just need updating. Consequently, your refi costs may also be reduced.

One benefit of a streamlined refi over a loan modification is that it's a brand new loan and hence you will be able to deduct much more interest from the first few years of payments than you would on a loan modification, Fierro said.

Some refi fees are negotiable, but those for services provided by third parties generally are not. These include the costs for appraisal, title insurance and termite inspection. Recording fees, property taxes and other costs imposed by the state or county are also not negotiable, nor are discount points -- a percentage of your loan you may choose to pay up front to lower your interest rate.

But origination fees may be lowered if you're borrowing a large amount of money and you're dealing with a broker or lender who's eager to seal the deal. Origination fees include the in-house costs to the lender and broker that result from putting your refinancing package together. "If you're a good loan and an easy close, they'll probably talk to you," Gumbinger said.

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Brokers may also waive or reduce their "application fee."

Also, you're well within your rights to question any "junk fees," Carter said. These include costs for services not received, such as a courier for a package you picked up yourself, or for services that seem gratuitous, such as a "loan review fee."

"If it's way out of line, feel free to challenge it," Gumbinger said. "If you're timid about it, you'll get the bill."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.