Posted by: Don Bayer, CFP
However; most banks don’t let you in on the details of this well kept secret. I wrote the article below back in the Fall of 2007 for our quarterly newsletter so the interest rate amounts are a bit higher than they are today.
Take a read about renewing your mortgage and learn (just like this client did) how you can save thousands of dollars simply by calling a mortgage broker up to four months in advance of your mortgage renewal date.
I know your answer. So why did I ask the question? Here’s why.
Avoiding the impact of rising interest rates is impossible, but understanding how your bank thinks and getting the facts they won’t tell you can certainly help contribute to your bottom line whether rates go up or down.
In April of 2007, our five year fixed interest rate was 5.09%. Fast forward four months to August 2007 and our five year interest rate was 5.79%. I have a client whose mortgage renewed in August 2007. This MonsterMortgage.ca client saved $13,980 in cash by locking in her $325,000 mortgage renewal rate four months prior to the maturity of her mortgage. By renewing her mortgage ahead of its maturity date she learned a simple fact that her bank would not tell her…you can save a lot of money when rates are increasing if you are pre-approved for a mortgage you don’t yet need. And if the rates drop by the time you need to renew your mortgage, you can always shift to the lower rate.
Most banks in Canada are experts in finding new clients. They lure us in with gimmicks such as low introductory interest rates on mortgages. Credit card companies do the same by offering 0% interest for six months if you transfer your current balance to their company. Car companies are famous for 0% financing or factory incentives. But once we take the bait, what happens next? We all like to be treated well when we give our loyalty to a business but at what price?
Here are some simple facts your bank won’t tell you that will guide you through your next mortgage renewal:
They know you are too busy with life to think about your upcoming mortgage renewal. Do you remember your anniversary date? Maybe. Do you remember your mortgage renewal date? Probably not.
It costs money for a bank to guarantee you a rate four months into the future. If you are a new client, no problem. If you are an existing client? Forget about it. Banks have already paid the cost to acquire you as a client. Now it is time for you to pay to help them find their new clients.
It is difficult and time consuming to shop the market for a competitive rate when you have no time. Remember, the banks will only leave you a few weeks to shop the marketplace and they know that most people look online at a few mortgage sites and then have a five minute discussion with their existing bank about renewing their mortgage.
Many people sign their mortgage renewal back without any serious negotiation at all. In fact, not even 50% of people negotiate a rate discount of only 0.75%, even though the markets discount rate is actually 1.5%. By not knowing that you could negotiate a better rate, you end up contributing millions of dollars each year to your bank’s bottom line.
Switching or transferring your mortgage and securing a rate four months prior to the expiration of your existing mortgage is becoming very popular and why not? I think every-one would answer YES to wanting to contribute $13,980 to their personal bottom line and not their banks.
It’s simple. Remember, you have already been approved for a mortgage and presumably you now have equity in your home and a good payment record. Just call or submit your renewal date online in advance of your maturity date and a Mortgage Agent will shop your mortgage to one of our over 20 lenders. By letting us know your mortgage renewal date in advance it ensures that your interest rate is protected and that you have plenty of time to choose a mortgage solution that is right for you AND NOT YOUR BANK.