If you’re like most Canadians, your mortgage is your biggest monthly expense. It pays to plan ahead and consider these 5 key mortgage renewal tips:
1. Avoid the Bank Mortgage Rollover Trap
I hear countless stories of people willing to pay hundreds of dollars in cancellation fees to switch cell phone, cable or even home security providers, yet when presented with an opportunity to save thousands of dollars, some mortgage holders don’t seem to want to explore their options?!
As easy as it appears to simply renew your mortgage at your bank, it’s an expensive mistake banks count on that costs homeowners thousands of dollars and years of unnecessary payments on their mortgage.
Lenders often wait until there are 20-30 days before renewal to contact you and make you a renewal offer. That’s because banks know that by leaving it to the last minute, chances are you will renew your mortgage with them and not at the best rates. For proof, look no further than the Bank of Canada’s finding that banks do not treat all customers the same. In fact, they offer larger discounts to new clients than to existing clients in order tomaximize profits when faced with reduced competition.
2. Consider a Mortgage Broker First
With ever-changing mortgage lending rules, more Canadians than ever are looking to mortgage brokers to better understand their options. With a single application and credit review, mortgage brokers can navigate the market on your behalf, assessing solutions from multiple lenders to provide a range of options. We can advise on product features including prepayment options and penalty calculations and match you with the right mortgage product for your unique circumstances.
Recent studies have also confirmed that consumers who use a mortgage broker save on average 19 basis points on their interest rate. By having a mortgage broker do the research and negotiating on their behalf, those Canadians achieved an average rate decrease of 1.4% off the posted rate compared with just 1% among other renewers doing the legwork on their own.
To give you an idea of how that computes, on a $225,000 mortgage, saving even 0.4% on your mortgage rate can save you over $10,000 during a 20 year amortization. By acting in your best interest, mortgage brokers can lock in a rate with various lenders for a no cost mortgage transfer up for 4 months in advance of your renewal date. If rates go up, you don’t have to worry – your rate is guaranteed. If rates go down, you receive the lower rate.
Reviewing options with a broker does not negate an offer to renew with your existing lender. In the end, your broker may advise you to stay where you are.
3. Never Accept the Banks Posted Rate
If you prefer to stay with your bank, chances are they might quote an additional discount but will likely tell you, “If you find a better rate, call us and we’ll match it.” This is bad policy as they expect you to do all the legwork, but take them up on it and do your homework. Find out what other lenders are offering so you can negotiate. However, don’t just focus on interest rate; amortization period, fixed or variable type of rate, payment schedule, ability to refinance and prepayment privileges all impact your ability to lower your mortgage cost and payments.
4. Clean Up Your Credit
Mortgage lenders rely on your credit score and the details of your credit performance when reviewing your mortgage application. The difference between a good or not-so- good credit score will affect your ability to get the lowest mortgage rate. The first indicator of credit performance that a lender uses is called a Beacon Score. This mysterious score comes from a statistical model that processes all of the transactions in your credit life and results in a score between 300 and 900. Minimum accepted score is 620 for prime financing.
Mistakes on credit reports happen. In many cases, consumers are unaware of negative information on their reports and false credit scores may impact your mortgage options. You can and should request your credit report information, available online for a fee. www.equifax.ca or www.transunion.ca.
5. Renovate or Consolidate
A mortgage renewal is an ideal opportunity to increase the value of your home with a renovation. In fact, of the $46B in equity financing in Canada this past year, 38% or $17.25B funded home renovations.
Given that more often than not, home improvements are less expensive than relocating, the cost to make that dream kitchen happen can be rolled into your mortgage renewal. The same is true with debt. If you are carrying high-interest debt outside your mortgage, you can consolidate your debt as part of your mortgage renewal and pay it off at a lower interest rate. You can look at the prepayment privileges to pay it off faster. It’s a great way to free up cash flow and breathe easier.
If you’re up for a renewal this year and would like help sourcing other mortgage options, please feel free to Al Nenshi at 403-540-3000.