Posted by: Vince Gaetano
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.