By Alim Charania
A lot can change in a year when it comes to mortgages. These changes can provide great opportunities for mortgagees to refinance their mortgage at the time of renewal in order to save money. Unfortunately, most people are under the impression that once they sign on the dotted line they are locked into their mortgage agreement for the specified term. One study found that a staggering 70% of people simply renew their mortgage every year without even looking into other options! Refinancing can give you the leverage to make your mortgage more affordable. Here are five tips to help you prepare for your first mortgage renewal and save thousands of dollars!
1. Plan in advance – mortgage renewals are mailed out months before the renewal date. This gives you plenty of time to shop around for the best rate. Many mortgage professionals recommend a four to six month window to negotiate because that’s how long a lender may guarantee a discounted rate. By planning ahead you could find yourself a rate significantly lower with another lender or have a nicely discounted rate to fall back on.
2. Do your research – mortgage research isn’t a one-time process you perform when buying you first home, it’s a topic you should revisit each year. The reason for ongoing research relates to the changes that occur in the marketplace. It is important to keep up-to-date with mortgage trends so you don’t get swindled into a higher rate than you deserve. The key thing to avoid when shopping for a new rate is signing with a bank’s posted rate. These rates are usually the highest the bank charges and all that extra interest will accumulate quickly, adding thousands to your mortgage total. Take the time and know what trends are doing so you can recognize a good rate when it comes along.
3. Don’t avoid the switch – some mortgagees are scared to switch lenders because of hidden fees and the paperwork that may be involved with the process. If you do your research and start early enough there is no reason to avoid switching your mortgage lender. When you make a switch at renewal time there is usually no monetary penalty. Switching allows you to take advantage of lower rates and save you money, so take the plunge if you find a better deal with a different lender!
4. Negotiate on everything – most people only negotiate the interest rate when they’re applying for or renewing a mortgage, but all variables are open to discussion! Make sure you know the importance of the amortization period, fixed versus variable rates and payment schedule flexibility so your negotiation power is up to its full potential. All these variables can help reduce your payments, interest rate, and overall payment period.
5. Work with a professional – some mortgagees find all this information rather overwhelming and some simply don’t have the time to do the necessary research. If you find yourself fitting into one of these two categories then consider hiring a mortgage professional. These brokers work for you and will handle all the shopping and negotiations required to make your mortgage more manageable.
Whether you decide to work with a professional or not make sure to do some research for yourself. It’s always a good idea to have the basic knowledge fully understood before jumping into one of the biggest purchases of your life. If you are ever unsure of any specifics, call your mortgage broker or professional to clarify. We are always happy to help guide you through the process!
Alim Charania is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.