Vancouver

Why It Pays to Shop Around at Mortgage Renewal Time

Customers who simply renew with their current lender miss out on saving themselves huge sums, so it's essential to talk to a broker before signing your renewal, say Jorge and Alisa Aragon







Mortgage calculations

While most Canadians spend a lot of time and effort in shopping for their initial mortgage, the same is generally not the case when looking at mortgage term renewals. Most people negotiate when it comes to cell phone contracts, hotel deals or simply driving a few extra kilometres to save a couple cents when you fill up your car with gas. But when it comes to banking and renewing their mortgage, most people are complacent, happy to get something that is OK but not the best deal that they could get.

A few years ago, the Bank of Canada conducted a study that found bank and credit union customers don’t get the best deal when they renew their mortgage with their lender. The people who save the most are first-time homebuyers and people who switch lenders. The reason is that the banks and credit unions have an opportunity to cross-sell services, offer bundles and fee packages. Existing customers assume they will get the best deal because of their loyalty and don’t bother to shop around at renewal time – but this is rarely true.

In fact, nearly 60 per cent of borrowers simply sign and send back their renewal that is first offered to them by their existing lender without even shopping around for a better mortgage with more favorable terms and rates. Lenders know this and for this reason, they offer a descent rate but if you complain or show them better competing offers, they will get progressively more competitive. For that reason, trusting your lender to offer a favorable rate up front is the worst thing you can do at renewal.

By using a mortgage expert at renewal time, it will ensure you receive the best mortgage options and rate catered to your specific needs. After all, just because a lender had the best available product or rate for you when you obtained a mortgage one, three or five years ago does not mean the same holds true in today’s market.

With products and rates changing on an ongoing basis, you can’t possibly know what the best offering is for your unique situation without using a mortgage expert to do some investigating on your behalf.

As mortgage experts, we provide better alternatives for clients as it’s our job to look at every rate and product change from each lender, including banks, trust companies and credit unions, to ensure we find the best deals for our clients. Mortgage experts have the inside scoop on rate promotions or mortgage features through dozens of lenders that saves clients hundreds or even thousands of dollars in interest. The services of a mortgage expert are free, as we get compensated by the lender based on the mortgage amount not the interest rate.

This is an example of how an interest rate comparison can help with save thousands of dollars. 

Mortgage amount $320,000

 

  Bank renewal rate

  Mortgage expert rate

Savings

Best five-year fixed rate

3.29 per cent

2.89 per cent

0.40 per cent

Monthly payments

$1,562

$1,496

$66

Interest cost

$48,770

$42,721

$6,049

Balance at maturity

$275,026

$272,938

$2,088

By shopping around at renewal time for a better mortgage with a more favorable rates and terms the savings were $3,960 in mortgage payments by increasing your monthly cash flow plus an additional $8,137 (in interest cost and by having a lower balance at maturity after the five years).

It is important to remember that the interest rate is not the only factor that you should consider. Finding the best mortgage with favourable rates and terms is what matters.  Such terms include portability option, pre-payment privileges including lump-sum payments and increase your mortgage payments between 15 and 20 per cent without penalties, and how penalties are calculated if you break the term of the mortgage.

Your best bet is to talk to a mortgage expert four months prior to your renewal date before signing anything. That way, you can rest assure you are getting the best possible mortgage product and rate that suits both your current and future mortgage needs.


Jorge and Alisa Aragon are mortgage and leasing experts with Dominion Lending Centres Mountain View. They are active members of the Greater Vancouver Home Builders Association. Jorge and Alisa focus on the overall needs and plans of their client and then find the best mortgage to suit their needs.
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