Every now and then we come across a mortgage statistic that is astounding. Recently Manulife Bank conducted a survey of 1,000 Canadian homeowners between the ages of 30 to 59 and it suggests people have money to burn. Among the surveyed, 65% did not compare mortgages from their existing lender when they last renewed.
• 20% stayed with their current lender after maturity and did not negotiate.
• 45% stayed with their current lender and tried to negotiate a good deal, but did not shop around.
• 35% compared mortgages from several lenders and chose the best overall lender and product.
The youngest group (ages 30-39) was most likely to shop around (41%), but was also most likely to accept their current lender’s offer without negotiating (24%).
Doug Cornick, president and CEO of Manulife was asked, “Why on earth people would give so much power to their lender?”
“Most people lead very busy lives and may not have the time or expertise to fully investigate their options,” he said.
The survey also notes only about three out of 10 Canadians work with a financial adviser to manage their debt more effectively. With busy lives and a lack of advice for most, this decision often gets left until very close to the renewal date, causing borrowers to follow the path of least resistance and renew with their current lender.
“The unfortunate thing,” he added, “is that this could end up costing them a lot of extra money and keep them in debt longer than they need to be.”
It’s been my experience, people who auto-renew often pay 1/2% to 3/4% more than necessary, or worse! In fact, many people sign renewal letters at their bank’s ‘special offer’ rate, which is usually well above the market. (Example: Today’s five-year fixed special offer bank rates are 3.94% to 4.09%. That’s up to 80 basis points above competitive rates on the street).
Even a 1/4% rate difference amounts to over $4,000 more in interest over five years, on a $200,000 mortgage with a 20-year amortization. That’s money that could normally go towards prepaying a fat chunk of principal.
It’s hard to understand why anyone would let a lender pick their pocket like this. At the very least, folks must find it within their strength to lift up the phone and call an independent mortgage professional for an unbiased opinion, even if you want to stay with your current lender. You absolutely owe it to yourself to keep your lender honest by surveying the market.
This all begs the question of why someone would ever want to deal exclusively with a lender that aims to maximize the interest their clients pay. But that’s a story for another day.
Jean-Guy Turcotte is an Accredited Mortgage Professional at Dominion Lending Centres- Regional Mortgage Group and can be contacted for appointments at 403-343-1125, texted to 403-391-2552 or emailed to firstname.lastname@example.org.