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Not All That Glitters is Gold…

June 16, 2017

The ‘Limited Time Offer’ letter you receive from your bank may not be all it’s hyped up to be…

Many home-owners now find themselves on the look-out for the latest deals; scouring the websites of their favourite travel sites in search of a deal for their next summer vacation. One deal that Canadians might not be on the look-out for is their mortgage renewal – leaving their mortgage to the last minute before making a decision – and that’s exactly what Canada’s largest banks count on.

Typically, if you hold your mortgage through one of Canada’s largest banks, you might receive a sleek, carefully packaged letter outlining a ‘limited time offer’ or ‘special rate’ 2-3 weeks before your mortgage comes due.

As pretty as that offer may be, the ‘special rate’ typically isn’t worth the high-gloss paper it’s been printed on, as these offers typically include rates 1.5% to 2% higher than what you get if other lenders or banks were to compete for your business.

Unfortunately, sometimes the lure of a ‘limited time offer’, especially one wrapped-up and dedicated to the home-owner is good enough to win their business. In combination with an impending dead-line, the mortgage maturity date, the banks know that home-owners have to either make a choice to move their mortgage or simply stay put by accepting a renewal offer. Time and time again, Canada`s largest banks resort to this tactic when dealing with loyal clients, and they do it for one reason – it works. Although 1.5 per cent may not seem like all that much, on a $300,000 mortgage, the difference of 1.5 per cent adds up to approximately $20,000 in interest payments over 5 years.

When faced with an upcoming renewal, time is on your side – assuming you don’t wait for that letter in the mail.

In 2011, the Bank of Canada released a study on the mortgage market in Canada. The study, titled ‘Discounting in Mortgage Markets’, reiterated the fact that mortgage brokers in Canada were “a significant factor in driving discounts” on mortgage rates – affirming the fact that mortgage brokers most often find the best mortgage rates in the market for their clients. Mortgage brokers were found to reduce the cost of a mortgage by 0.17% on average.– adding up to thousands of dollars over the life of your mortgage. On a $450,000 mortgage, a savings of 17.5 basis points (bps) equals approximately $3700.00 over a 5 year term. Extrapolate that kind of savings over the life of your entire mortgage, and you would save over $30,000.00 – that’s money in your pocket, not your bank’s.

Although it may seem like a long time, the best time to consult a mortgage professional regarding your renewal is four to six months before your mortgage renewal date. Reviewing your options up to six months beforehand allows you to secure a no obligation, completely free ‘rate hold’ months in advance of your renewal – so if mortgage rates go up before your renewal date, you’ve got a great rate in your back pocket; if rates go lower, you’re entitled to the new lower rate.

By consulting a mortgage professional four to six months in advance, you’ll be able to evaluate a number of options at your disposal. Of course, you’ll also know what to expect from your bank when you get that ‘limited time’ offer in the mail. At the least, you’ll be better equipped to speak to the representative at your bank about what you expect – and that’s a ‘special offer’ your bank just won’t tell you about.