Tips for Conducting an Effective Negotiation with the Mortgage Banker

You've done the whole process by the book. You analyzed and got a handle on your household's income and expenses. You allocated the budget to balance assets, liabilities, and day-to-day expenses. You built a winning mortgage mixture, in line with the current market interest rates, that fits you like a glove — and now it's time to face reality: to run an interest rate tender and collect mortgage offers from the banks.

We'll use the following simple example throughout the article. Suppose we need one million NIS to buy our home. We split the mortgage into two loans:

• 333,000 NIS at a prime-linked rate for thirty years
• 667,000 NIS at a fixed unlinked (KALATZ) rate for twenty years

Our goal now is to find the bank that will agree to sell us this mortgage mixture at the lowest monthly payment. Bank A might be willing to offer us this mixture for 5,000 NIS. But if through negotiation we manage to get the same mixture from Bank B for 4,900 NIS — that's a saving of tens of thousands of NIS going straight into our pocket.

So this article lays out how, in our view, an interest rate tender should be run to get the best possible results. Unlike the other processes described on our site, this one calls for softer skills: etiquette and personal charm, the ability to make your case concisely and persuasively, a read on the person across the table and what motivates them, and more. Let's be clear from the outset — this is going to be a Turkish bazaar, and you need to come prepared.

Maybe you've never negotiated with a service provider before. If you're not comfortable with it, you'll have to push past that discomfort. You don't really have a choice — otherwise you'll pay tens of thousands of NIS more. And if it all feels like too much, hire a mortgage broker to run the negotiation for you (read more about our mortgage advisory service).

What will affect the interest rates you receive

During the meeting, the banker has to form a view on how worthwhile the deal is for the bank. That comes down to the profit potential in the deal (the expected interest payments) weighed against the risk that you'll end up insolvent — unable to make all the payments you committed to — and against how easily the bank could limit its losses by exercising the collateral, that is, selling your home.

The only factor you control during the meeting is the impression the mortgage banker forms of you in conversation. The banker will sum up the meeting and pass your mortgage application up for approval at the next levels. If the impression is negative, the bank might reject the application. On the other hand, if you have good chemistry with the banker and come across as someone whose conduct is calculated and organized and who has a firm grip on their finances, the banker can conclude that the deal carries less risk — and the bank will be more likely to approve it, on more favorable terms.

So your ability to make a good impression can affect the quality of the deal — that is, the level of interest rates you're offered.

A winning first impression: how to prepare for the bank meeting

Before the bank meeting, pay attention to your appearance and dress: a feature once aired on "Hakol Kalul with Sivan Cohen" highlighted the difference between clients who showed up neat and put-together and those who arrived looking disheveled. Treat this like a job interview. Shave and get a haircut. Wear a clean, pressed shirt and clean long trousers. Skip smoking before the meeting (so the smell of cigarettes doesn't cling to your clothes) and keep your breath fresh.

Be civil, and before the meeting it's a good idea to avoid the following:

• Being rude to other branch visitors and/or staff.
• Talking loudly on your phone inside the branch.

The mortgage banker — respect them, but stay wary

A quick intermission before we go on — here's a personal story from Eyal, the company's founder, about the negotiation for his own mortgage. In December 2018, Eyal needed to take out a mortgage. He went to his bank to meet with the banker at his appointed time. His knowledge, the product of all the analysis he'd done, was solid and well-founded, but he didn't try to flaunt it. He wanted to believe that his strength as a borrower, and his being a bank customer, would do the work for him.

The meeting began, and the banker treated Eyal with contempt, telling him to "forget everything he learned from Dr. Google and start listening to Dr. Mila" (her real name is on file). Later in the meeting she told him, "it doesn't matter whether you take the mortgage with us or not — I [the banker] get my salary at the start of the month either way."

He got no better treatment at another bank. The banker rolled her eyes in open contempt when he presented the mortgage mixture he'd prepared and said, "are you sure this is what you want to do?!" He nodded yes — and to this day is still waiting for her offer.

These experiences shaped our thinking about how to negotiate with bankers. From what we know of the banking system and from our own experience, we concluded that the banker across the table isn't in a system that rewards and motivates them enough to fight to win you as a client. If you walk away, there are others waiting in line behind you — because demand for mortgages never lets up.

So our view is that you need to get the banker on your side and working toward your goal. Keep the communication pleasant and non-confrontational. Aggressive behavior can make them give up on the application and on you. Our recommendations for this stage:

• Think of it as a first date with someone you like. Behave like a lady or a gentleman.
• Look for common ground — living in the same neighborhood, kids the same age, you both root for the same team, and so on.
• During the meeting, steer clear of blunt, hard-edged communication. Lean on positive language and show the banker how they can help you.
• Instead of "if I don't get good interest rates, I'll move to another bank," try "I really love my bank, and I need some help on the rates so I can stay a happy customer."
• Instead of "bring me a good offer and I'll switch to you," try "I've heard great things about this branch, and I'd be very happy to switch and become your client."

How to present ourselves correctly

Let's make the banker's life as easy as possible. We'll help them focus on the strengths and gloss over the weaknesses.

At the start of the meeting, it's worth making a positive, professional first impression. Introduce yourself: describe yourself concisely and to the point, so the banker can get to know you and understand your goals.

A little flattery never hurt anyone, so try to build a pleasant rapport with the banker. You might mention that you came to this particular branch specifically because you'd heard so much from friends in the neighborhood, or in the WhatsApp group, about its high level of service and professionalism.

The banker will try to draw out information that helps them gauge how financially resilient you are as clients, so now is the time to show off your strengths. Volunteer plenty of positive, relevant details. Be sure to mention if you are:

• Academic degree holders
• Long-tenured and stable in your workplace.
• Salaried employees at established workplaces / civil servants / employees at a stable and well-known company
• Running a current account with no overdraft and no loans.
• A clean financial history: no bounced checks, no bankruptcies, and no enforcement proceedings.

Nobody's perfect, and you may have skeletons in the closet too. But even skeletons can be handled the right way. Be ready to address any weaknesses. Think ahead about how you'd answer the following questions, where they apply to your situation.

• Why did you take out loans on the account? What were they for?
• Why is your job tenure short? Be sure to give reasons for switching jobs that are legitimate in the bank's eyes. For example: the new role pays more, or the new company is larger and better known than the last one.
• For self-employed applicants — what's the income forecast, and how stable is it? You'll need to show accountant's reports proving steady income. Mention how long the business has been running and whether income is trending upward.
• For construction on private land — what's the building budget, and how does it account for overruns?
• About to change careers? Facing a professional retraining? Keep that to yourself. The bank loves salaried employees and hates instability. The clerk doesn't need to know you plan to quit your engineering job to chase your dream of opening a therapeutic farm. In the banking world, employment stability is valuable currency.

How to present the mortgage mixture you have chosen

Once you've handed the banker all the documents they need to get to know you, it's time to talk about the mortgage mixture you've chosen. When you do, give only the tracks you selected, the number of months in each, and the amount allocated to each. Whatever you do, don't reveal the interest rates or the monthly payment you're hoping to get. Do that and you'll torpedo the negotiation right out of the gate.

If you haven't yet received a mortgage offer from the current bank, don't show offers you've gotten from other mortgage banks. The current bank may be willing to come in far more competitively than its rivals. Show all your cards too soon and you hand the banker exactly what they need: a monthly payment that's profitable for the bank but just low enough to beat the others.

If you've followed us so far, our view is that you must not make the first offer. You'll be coming into this alone, possibly for the first time, and the information gap between you and the seasoned banker is just too wide. Hundreds of clients like you have sat in that same chair.

But some people will feel this isn't the right approach. What should you do if it's your first time talking to the bankers and you still have to name a desired monthly payment? In that case, name a particularly low one (within reason, of course — your figure still needs to be grounded).

Either way, only after you've received an offer from the current bank should you show offers from other banks that are definitely cheaper — and ask the banker for a winning, cheaper offer of their own. If they can't beat or at least match it, that bank is out of the running.

How to handle objections during the interest rate tender

Let's go back to the bankers who took Eyal through the mortgage process. His own wall of self-confidence cracked a little when the banker rolled her eyes and asked whether he was sure about the mixture he'd built. A moment like that can be deeply unsettling, and it's all too easy to be swayed by the banker's arguments — so it pays to know their likely criticisms and questions and be ready for them:

"Your mortgage mixture isn't good; I have a different offer"

First, the banker may well be right. But it's not realistic that in the twenty minutes before the conversation turned to the mixture, the banker learned enough about you to judge the mixture you chose and how well it suits you.

What is certain is that bankers sometimes have a stake in steering you toward a different mixture — one that's more profitable for the bank or better aligned with their sales targets.

You don't have to turn down their suggestions outright, so as not to seem dismissive. But you must leave the meeting with a mortgage offer on the mixture you chose.

"Increase the monthly payment and I will give you better interest rates"

The banker usually pulls out this argument when they can't beat the competing offers you've brought from other banks. Why? Because raising the monthly payment usually means shortening the loan term. As you can see from the current interest-rates page, on fixed-rate loans a shorter term usually lowers the bank's funding cost, so it can offer a lower interest rate. In other words, the bank will offer you a lower rate than the offer you brought from another bank.

But that's not what you planned! You did your homework. You know the right monthly payment for you, and you don't want to raise it. If you'd wanted a high monthly payment, you'd have built that mixture from the start and asked other banks for it.

What's more, if you raise the monthly payment, you won't be able to compare the new payment against your earlier mortgage mixtures (which carry the original, lower payment) — so it's no longer an apples-to-apples comparison. A mixture with a higher monthly payment is necessarily cheaper than others, but it's also harder to live with day to day. It's an unfair comparison. Just tell the banker that the monthly payment they're offering exceeds the spending limit you set for yourself.

"It is worth taking a smaller mortgage, and the missing part — we will top it up for you with an attractive loan from the bank"

It really will be an attractive loan, and it'll be very tempting to take it. But you have a fixed monthly budget to service all your obligations, and that attractive loan will eat into your capacity to repay the other loans — which make up the lion's share of the mortgage.

So why does the banker do this? By pulling part of the mortgage out into a separate loan, they shrink the mortgage and lower its monthly payment (because now, instead of lending, say, one million NIS as a mortgage, the mortgage stands at just 925,000 NIS plus 75,000 NIS in a loan outside it). You can see that the payment on the mortgage went down, but it's easy to miss that the payment on your total liabilities went up.

Summary

Negotiation is a non-analytical, give-and-take process. It's the most intense and time-consuming part of the whole thing, but the least important. In our view it pales next to proper planning of your financial plan and your mortgage mixture. If you pour all your energy into the interest rate tender, you'll win the battle but lose the war, and pay tens of thousands of NIS more. The difference between a good negotiation and a perfect one runs to a few tens of thousands of NIS. The difference between a good mortgage mixture and a perfect one can easily reach hundreds of thousands.

Good luck.