Although many Canadians are well aware of what their mortgage renewal or maturity dates are, they may often leave things to the last minute to do something about it – and that’s what your bank is counting on.
Your bank might wait until there are 3 or 4 weeks left until your mortgage comes to maturity before sending you a letter with a renewal offer typically 1.5% to 2% higher than what you might find elsewhere in the marketplace. The strategy being that many Canadians will simply forgo the process of looking around for a better rate and will sign on the dotted line. Home-owners, feeling like valued clients, might expect their bank to reward them with the “best rate” as thanks for their patronage; however, history has shown that the offer received in the mail is often times far from the best product available. In fact, on a $300,000 mortgage, a difference as small as 1.5% can add up to over $20,000 after the end of a 5 year term.
When faced with an upcoming renewal, time is on your side – assuming you don’t wait for that letter in the mail.
A 2011 Bank of Canada study, ‘Discounting in Mortgage Markets’, found that mortgage brokers often find the best rates for their clients; pointing to mortgage brokers as “a significant factor driving discounts…”, reducing the cost of a mortgage on average by 17.5 basis points – adding up to thousands of dollars over the life of your mortgage. For a $300,000 mortgage, 17.5 basis points adds up to roughly $2500.00 over a 5 year term. Over the entire life of a mortgage, homeowners might be looking at over $10,000 in savings.
Before signing on the dotted line, take the time to consult a mortgage professional surrounding your options three to four months in advance. At the least, you’ll be better equipped to speak to the representative at your bank about what you expect – and possibly show them that their “best” just isn’t good enough.
The Financial Post article referred to can be read in its entirety here
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