Is your mortgage coming up for renewal? Don’t be too quick to sign that mortgage renewal letter. More than 70 per cent of Canadian mortgage holders do just that, and what is the usual result? A higher rate and a mortgage product that might not be best suited to their interests.
Experience has shown that the “Big Banks” send their mortgage renewals out at a posted rate. Lenders are counting on the fact that most homeowners are too busy to ask questions or to inquire about getting a better rate. Don't let this happen to you!
You should recognize that you are now negotiating from a position of strength as your mortgage principal has dropped and in most cases your home value has increased. Lenders see you as a lower risk borrower and consequently you should be getting the best rates available. That may not happen if you simply sign the renewal document provided by your existing lender.
Rather, let the lenders compete for your business to be sure you do in fact get the best mortgage possible.
The following are some things you need to consider before you renew your mortgage.
- Start taking action on your renewal 120 days (four months) in advance. Mark your calendar or digital organizer for four months before your renewal. On that date, start re-evaluating your needs to see what type of mortgage is likely to fit best this time. Start researching the market for products, features, interest rates, lenders and interest rate trends. If this sounds like too much work and you are leaning toward simply signing your bank’s offer when it arrives, don’t! Instead, take the really easy route and let a mortgage expert do all the work for you, for free.
- Ask for a lower rate. If you do nothing else, simply pick up the phone when you receive your bank’s renewal notice, thank them for the interest rate they have offered and ask them if they can bring it down a little. In most cases, they will say yes. Of course, you should wonder, “If I can get a lower rate by simply asking for it, imagine how much better rate and features I could get if I had a mortgage expert playing hardball with several competing banks!”
- See renewal as a time to start over. So much may have changed in your life since you first took out your mortgage. It would be foolhardy to lock yourself into exactly the same mortgage at an unnecessarily high rate just because your bank doesn’t want to take the time to provide a financial review and make a more current recommendation. And don’t think this has to take up a lot of your time. Mortgage experts can perform a full review in a few minutes, whenever and wherever is most convenient for you.
- Attractive new mortgage products and features may be available that you’re not aware of. New mortgage products are being introduced all the time. Not only do some offer better rates, they may also offer better pre-payment options, cash backs, amortizations, accelerated payment schedules, investment opportunities and more. But you will never know if you simply sign up for more of the same.
- The rate market may have changed dramatically. When you first took out your mortgage, you may have gone variable because rates seemed to be continually dropping. But what if the economy and interest rates have shifted in the meantime, as they have recently? Maybe it’s time to consider locking in so your payments don’t start creeping up month after month. But you will never know if you simply sign up for more of the same.
- You are not obliged to renew into the same kind of mortgage, nor are you obliged to stay with the same bank. When your mortgage term is up, all bets are off. Nobody owns you. Sometimes people feel loyal to a lender since the lender was good enough to lend you the money, you owe them your business. In reality, it’s a business transaction like any other. If the lender isn’t giving you the best rate, product, features and service, you have every right to take your business elsewhere. Of course, shopping around for the best alternative can be confusing and time consuming, so go to a mortgage expert to do all the legwork, comparisons and negotiation for free.
- You can negotiate and play one bank off another. Again, don’t feel you are being disloyal by asking for a better deal or shopping around. Of course, you won’t be able to negotiate very effectively if you try to fit it within the 30-day window your bank gives you. This is another reason to start early. And it’s also a another good reason to use a mortgage expert – seasoned negotiators who know exactly how far to push each bank to get you the best deal.
- If you can, pay down the principal. Renewal is a great time to put a lump sum down on your mortgage. There are no limits to how much you can pay. And since it goes straight toward your principal, even a modest amount can dramatically reduce your amortization and total interest costs.
- Renewal is the best time to refinance. If you are thinking about taking out equity from your home for renovations, investments, children’s education, debt consolidation, etc., do it at renewal time. Since your mortgage term has ended, there are no early payment penalties, which can save you thousands of dollars.
- Rate isn’t everything, but it’s tremendously important. Accepting your bank’s first renewal offer is like leaving money on the table. You can do better by shopping around yourself, and you can do MUCH better by letting a mortgage expert shop for you. Shaving a point off your rate can save tens of thousands of dollars over the life of your mortgage!
- Don’t be scared off by fees to switch lenders. Your existing lender may tell you there’s a discharge fee if you move your mortgage. But don’t worry. Most lenders let you include the discharge fee into the new mortgage and it’s a minimal cost considering how much you can save in interest.
- Make sure switching lenders is worth it. In almost every case, it’s very much worth your while to switch lenders if that’s what it takes to get a mortgage and rate that fits your needs best. However, keep in mind that moving to a new lender involves some extra steps. Since it’s a new mortgage, you have to go through the application process again, proving your income and getting your credit checked. In some rare cases, the tiny amount you would save by switching lenders may not be worth all this extra work. But even in these cases, it’s definitely worthwhile to have a mortgage expert review your situation and shop the market for you. A reputable broker who is looking after your best interests will tell you if it is optimal to stay with your existing lender.
- Even if you get a lower rate, keep your payments the same. Sure, with a lower rate, you could enjoy lower payments and increased cash flow. But if you keep your monthly payments the same as they were when your rate was higher, you will pay off your mortgage sooner and be well on your way to financial security.
So if your mortgage is up for renewal, talk to a mortgage expert, who will be happy to provide you with a free consultation by reviewing your current situation and ensure you get the best rate and terms available.