Being in the mortgage market for the past 25 years, it still amazes me how clients and the general public treat mortgage renewals.
Well you better be smart, remember when you did your homework to get your first mortgage? You need to do it again. The bottom line is this; the bank wants to see how much you know. EDUCATE yourself…because I am sorry to say the bank is not your friend.
Major Canadian banks are getting wise and are marketing their existing clients as early as 6 months before the maturity date. In Canada over 60% of renewals are signed back without even shopping around. Clients’ get excited because mortgage rates in Canada are so low. So what do they do, they automatically sign back the agreement. Well the first offer in most cases is not the best offer and in many cases the banks are sending renewals out at posted rates.
Big deal you say, well in today’s mortgage market a posted five year fixed rate is 4.64%. Most of our qualified clients are receiving 2.69% at the very minimum. Which would you rather have?
The other tactic is to offer a decent rate like 2.99% for example. Again clients get excited since they can lock in their mortgage early. But let’s examine this closely. If you do decided to lock in for 60 months you may be happy, but if you could have been patient for 120 more days you would have been really happy.
Take this example: A $250,000 mortgage over 25 years at 2.99% and at 2.69%
Amount rate monthly P&I payment
$250,000 2.99% monthly $1,181.83
$250,000 2.69% monthly $1,143.71
The savings per month is $38.12 if you waited the 4 months which in turn means that you are saving $38.12 for the next 56 months. The total savings would be $2,134.72 ($38.12 x 56)
Here is some more advice to help your education. Consumers should visit a reputable mortgage broker 120 days before their mortgage maturity date. This immediately gives you the benefit on receiving the lowest rate for your mortgage renewal and for the entire 120 day period. A good mortgage broker will educate you on how to better manage your mortgage with no cost or obligation.
Another tip; if your previous rate was higher on your maturing mortgage this means that your new payment should be lower. Try keeping the same payments on your new mortgage as the old mortgage this will allow you to pay off more on your mortgage painlessly. The faster you pay down the mortgage the less interest you will pay over the life of the mortgage.
Let’s take an example from the above numbers. If we take the same mortgage amount and the same interest rate of 2.69% and pay it off in 24 years we have saved $14,084.52 in principal and interest payments ($1143.71 x 12). Remember that amortization in most cases is more important than rate.
As a qualified consumer you can demand the best rates. Work with a mortgage professional to help you save money and get educated.