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Early Renewals

Renewal-mortgageIt’s hard to imagine the mortgage industry getting more competitive than it already is, but it will…every year.

One area where lenders are constantly looking to outflank competitors is with client retention. And what better way to maximize retention than by making first contact with clients who are approaching maturity?

But when you get that renewal call or letter from your lender, it takes forethought to make the right decision. That’s the topic of this week’s Globe column (click for article).

For many borrowers, “locking into a sure thing now is [preferrable to] waiting for something better,” notes Scotiabank’s David Stafford. But like so many other personal financial scenarios, you generally pay a premium to reduce risk. In this case, it’s a rate premium for the “privilege” of renewing early.

renewal premiumsIn an ideal world, your existing lender would offer you a 120-day rate hold at no rate premium with no obligation. But that doesn’t happen very often. So, renewers are left with a decision: take their lender’s early renewal offer or wait for something better.

If we were betting folk, we’d wager that lenders will start making this early renewal decision easier on consumers. They’ll do that by getting progressively more aggressive with their offers and/or more cunning in their sales tactics. (Many brokers have noticed a trend in this regard already.) It’s a trend with very real implications for brokers—who normally like being paid on renewal—and clients (who like to save money and avoid the hassle of switching lenders).

But as a customer, you owe it to yourself to compare your current lender’s mortgage to the competition’s. A 5-10 basis point rate savings, and/or more flexible contract terms, can easily justify the 3-4 hours of your life it takes to switch lenders.

Related:  Shop Your Renewal

Rob McLister,  CMT