Lenders 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
One 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
When 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:
Check the major rate comparison websites.
Call the non-broker banks. (RBC, BMO, etc.)
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.
Compare the above to your existing lender’s offer (including all switch costs, if any).
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
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