What is a mortgage renewal you ask?
Each mortgage has a set term which can vary from one to 10 years. Just before the end of your term you will receive an offer from your current lender and you have three options
1. Sign and send back as is.
2. Check the market to make sure you are getting the best rate and renegotiate with your current lender
3. Move the mortgage to a new lender.
Option 1 is not a very good idea in my opinion.
The onus is on you to make sure you are being offered the best rate. Banks are a business like any other and they are seeking to make the highest profits they are able as to keep their shareholders happy. There is nothing wrong with that. That does mean however that you as a savvy consumer should take a few minutes to ensure you are being offered the best possible rate you can get.
Think of it as the sticker price on a vehicle at a dealership. The rate you are being offered is a starting point for discussion, not the final price. Let’s look at an example:
Mortgage of $300,000 with an amortization of 25 years.
Your offer is for 3.19% for a five-year fixed = $1,449.14/month and you will owe $257,353.34 at the end of the term
Best rate is 2.59% for a five-year fixed = $1,357.38/month and you will owe $254,372.59 at the end of the term
You would pay $91.76 less each month or $5,505.60 over all 60 months and still owe $2,980.75 less.
So you need to ask yourself if you are OK handing that money over to the mortgage provider or if you would prefer to keep it yourself and I am pretty sure I know what your answer will be.
So here are the steps I mentioned to save yourself all that money.
1. Receive the offer from the mortgage lender and actually look at it ASAP so that you have enough time to make an informed decision.
2. Research via the Internet and phone calls to find out what the best rate even is.
3. Phone your current lender and negotiate! OK, you are going to have to get downright assertive and that may be uncomfortable but when you compare your comfort to the thousands of dollars you could save, you will see that it’s worth it.
4. If said lender will not offer you the rate then move the mortgage. You will have to provide paperwork and complete the application but if you keep in mind the example from above then I repeat, it’s worth it.
5. Take a look at your budget and see if you can increase the payments to decrease the mortgage and save yourself even more as the overall interest costs decrease.
Keep in mind when that renewal notice arrives that you literally have the power to save yourself money and you are not obligated to accept the first offer which is presented to you and I truly hope you do not.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.