You have been living your life and things have been going just swimmingly and then (cue the music from Jaws) you get notice from your current mortgage provider that your mortgage is up for renewal.
Well there is no need to panic my friends. This week we are going to teach you how to navigate the mortgage renewal process like a boss!
So basically you have a few options open to you.
1. Just sign. This option is the easiest for sure but it is likely not in your best interest long term. I have said it before and I will say it again that banks are in the business of making money and there is nothing wrong with that. The offer you receive on your mortgage renewal will likely be above what you can get with a little research but you will not have to do anything more than just sign on the dotted line and perhaps that is just fine with you.
2. Negotiate with your current lender. I am fully aware that we live in Canada and as such negotiation seems somewhat rude but I know you can do it and that you should do it! Often all you have to do is make a phone call to a friendly rep who will enter into friendly negotiations with you until you both agree upon a final rate that likely lies between their first offer and the best rate on the market. Then you sign the offer; send it back to them and next thing you know you can rest easy knowing your mortgage is all taken care of.
Either of these first two options can be great if there has been a life change for you.
Perhaps you have recently become self-employed and cannot verify your income for a new lender. Perhaps you are a casualty of the falling price of oil and have been laid off temporarily. No matter what the case accepting the renewal offer can be what’s best for you. But if your life hasn’t changed and you want the best option possible then you really need to look at number three.
3. Shop around! Despite your best negotiating abilities you will likely always be able to find a better rate out there somewhere. I know that many of you would rather have a root canal than redo your mortgage but before you sign you owe it to yourself to look at you options.
Most lenders offer a mortgage switch program. It’s as easy as it sounds really. You are simply switching your mortgage from one lender to another. They will pay for an appraisal if its required. They will also pay for the cost of a legal signing service to come to your home when it’s convenient for you to sign all the final papers. Oh, and did I mention that you will be offered the best rate possible?
You will need to expect the process to take about six hours all together and you are going to need to provide paperwork to the new lender as it is a new mortgage. These will include a Letter of employment and recent paystub, the renewal offer from your current lender, proof of home insurance, property tax bill and other items as needed.
Why should you even bother you ask? The numbers don’t lie so let’s take a look at them shall we?
I have based these numbers on a $300,000 mortgage with a 25-year amortization.
A) Renewal offer at 3.19% for a five-year fixed rate
$1,449.14/month with $257,353.34 left owing at maturity.
B) Switch offer at 2.69% for a five-year fixed rate
$1372.45/month with $254,878.62 left owing at maturity.
That means that you will pay $76.69 less per month or $4,601.40 over the five years. But wait! You will also owe $2,474.62 less at maturity bringing your total savings to $7,076.02. Holy doodles! That translates to your time being worth $1,179.33/hour.
So there you have it in a nutshell. I think the mortgage renewal process will now be less intimidating by far. It’s your money folks, keep it!
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer