mortgage-shoppingLenders make a lot more money when they renew your mortgage than on your initial term.

That’s partly because they don’t have to compensate anyone for referring you (or compensate them as much). But it’s also because many renewers don’t comparison shop as much or negotiate as hard.

According to a recent Maritz/CAAMP survey, only 56% of borrowers negotiated their mortgage rate at renewal. A remarkable 4 in 10 took the first rate their bank offered.

How good do you think that rate was?

It sure as buttercups wasn’t the best the bank could do.

A while back the Bank of Canada found that borrowers who don’t comparison shop pay rate markups that are more than double those paid by comparison shoppers.

And lenders’ client retention teams are wise to this. So they employ strategies like graduated rate discounts, which means they offer you an okay rate to start, and if you complain or show them better competing offers, they get progressively more competitive.

That’s why trusting your lender to offer a fabulous rate up front is the single worst thing you can do at renewal.

Get Second Opinions

Mortgage-Advice-Second-OpinionOne of the easiest ways to protect yourself is to compare rates with a broker. Unfortunately, only 28% of mortgage holders “definitely” plan to consult a mortgage broker at renewal, according to Maritz research.

But whether you consult a broker or call up multiple banks and credit unions, shopping around your renewal is mandatory. That challenge is convincing bank customers of that. They tend to be a loyal sort. In fact, bank clients are more than 50% more likely to use the same lender when renegotiating or renewing their mortgage than broker clients.

That’s largely because brokers open people’s eyes to better alternatives. At any given time, one of dozens of broker lenders may have rate promotions or mortgage features that save a borrower hundreds, or even thousands, in interest.

Unfortunately, broker clients also switch lenders more often because a minority of less ethical brokers churn their books—i.e., convince borrowers to switch lenders primarily to generate another commission. (Naturally, your success with any advice provider depends on their integrity.)

It Takes Effort

Cut-Mortgage-RatesWhen your mortgage maturity comes around, don’t be satisfied with your lender’s first offer. If you’re well qualified and really want the best deal, do this instead:

  1. Check the major rate comparison websites.
  2. Call the non-broker banks. (RBC, BMO, etc.)
  3. Call a broker, check their broker lender offerings, share your own findings and ask them to compare the pros/cons of the best deals you’ve found.
  4. Compare the above to your existing lender’s offer (including all switch costs, if any).
  5. Pick the best overall deal (which isn’t necessarily the lowest rate…see this).

These steps should easily shave one-or two-tenths of a percentage point off your rate…or more. A 10 basis point rate savings on a $200,000 mortgage puts $950 back in your jeans over 60 months.

You’ll also improve your odds of finding a mortgage with the optimal term and fewer restrictions. And those two points always save you more than any small rate difference.

Rob McLister, CMT

  1. In order to switch lenders at maturity does a borrow not have to go through the entire mortgage application process again? If so than that could also be another reason why borrowers do not change lenders. My strategy has been to use mortgage rate websites to determine the best rates available approximately 60 days prior to renewal. I then approach my existing lender and request that they provide me with a better rate. My existing lender usually counters with a rate match.

  2. Great article, hopefully more of the “loyal” bank users will read and actually make an effort to understand the bottom line :)
    YOU pay more and get less if you don’t negotiate !

  3. Hi Brian,
    Yes and the perceived effort of that application process plays into why many folks don’t negotiate or shop as much.
    Another reason is that some people don’t have confidence they’ll re-qualify.
    You’re strategy is certainly used by many. However, for most borrowers there are still benefits to speaking with an independent experienced mortgage planner, including:
    * Advice on term selection
    * Comparison of features and restrictions (other lenders often provide as good a deal, or better, but without brutal penalty calculations and/or with flexibility like no-penalty blends/extends)
    * Exposure to potentially better rates (not all lenders match all rates all the time)

  4. Hi Rob,
    Good post but I am curious. Why would you encourage people to go to RBC and BMO if you are a broker?

  5. I think the article is primarily for those who renew with their big lender without negotiating. Once they wake up and realize there’s ways to have more for less, they one day may also realize broker services are another “more”.

  6. Switching at renewal forces the borrowers to go through the entire application process all over again including meeting with the broker/lender, signing of legals, appraisal etc. Switching also creates a new registration on the titles which creates new discharging fees. This would largely explain why borrowers should try to negociate with their existing lender and get a competitive rate rather than consider switching. Many brokers don’t fully disclose this info when advising on the subject.

  7. Ha. Which bank do you work for?
    Discharge fees are only $200-300. If switching takes 3 hours to apply and sign and you save $1,000, that’s $333 an hour. I don’t know what you do for a living but that’s about $300 an hour more than I make.

  8. Alan H. You are misinformed sir, and misinforming those who rely on sites like this for information. Refinances carry many of the costs you are referring to (if the client refinanced by staying with their current lender they would also experience these fees in many to most cases) however Switches/Transfers do not. The discharge fee at the current lender is typically the only expense a client has when moving to a new lender. Most lenders cover the legal cost associated through using one of the title companies to make the move.
    This is a very good example of why people should get second opinions and work with a Mortgage Broker whom has knowledge outside the tiny little box most Bank Reps work in.

  9. Alan H, while I applaud someone for shilling hard on the part of their bank; I think Rob’s central point is unassailable. Research, check, review and seek information before making a financial decision. Is that not the mantra of financial education?
    Oh and some brokerages pick up the appraisal and legal costs on collateral charges depending on the size of the mortgage so all the client is investing is time, and that time spent may be well rewarded.

  10. I switched lenders 3 times since I bought my house and indeed, never had to pay legal fees when switching as the banks were picking up the tab. I sold my house 2 years ago and then found out that I had to pay 3 discharges for the ‘deeds of subrogation’ that had been registered. These fees were never disclosed to me prior. This is where my advice comes from and for the record, I don’t work for a bank.

  11. “I had to pay 3 discharges for the ‘deeds of subrogation’ that had been registered.”
    That is definitely not typical.

  12. If your opinions are based on your own personal experience as a homeowner, how are you possibly qualified to state that “Many brokers don’t fully disclose this info?”

  13. MY experience with some highly recommended brokers has been that they ask for the kitchen sink when offering you a couple of tenths better rate than I get at my bank. I take my details to the bank, my manager plugs in my numbers, and she has my answer within minutes. Meanwhile, I am taking photo copies of my dental records for the mortgage brokers. Sorry, but my entire experience has been negative with 2 highly touted brokers, when compared with my bank manager. For what $1000 over 5 years. No thanks!

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