The Bank of Canada has kept the key interest rate steady and banks have been quietly cutting their rates for fixed and variable mortgage rates. They are also fighting for a shrinking pool of borrowers so it sounds like a great time to renew your mortgage.
Yet many Canadians simply sign their mortgage renewal papers. A 2011 Manulife survey found that almost two out of three Canadians surveyed stayed with their current mortgage provider and didn’t negotiate.
“I don’t know why,” says independent mortgage broker Christopher Molder. “I guess money grows on trees. People are busy, their lives are busy, mortgages aren’t on their mind, the maturity dates comes and goes and they just sign back whatever is offered.”
If you are renewing your mortgage, here are five things to keep in mind before you sign that document.
The posted rate isn’t the best rate
Think of the posted rate as the opening offer in a negotiation or as certified financial planner Shannon Lee Simmons says, “Banks use the posted rate to provide a value proposition to their clients. They often start with the posted rate and then offer discounts to preferred clients. Consumers need to educate themselves and shop around. Even if you get the secret or discounted rate, if you only get rates from one financial institution, you may still be paying a premium compared to other lenders.”
“Canadians really trust Canadian institutions, especially banking institutions,” says Molder. “The banks play on that a little bit. They’ll play dumb, offering the posted rate and leave it up to the borrower to negotiate and play the game.”
Shop around before you negotiate
Do your research before you begin negotiations and always ask for a better rate. “Of course, if a borrower asks, they’ll get a better rate,” says Molder. When it comes to researching mortgage rates, Molder says it’s very easy – just go online and check the rates offered by various lending institutions.
Once you know the rates offered for your preferred mortgage term (fixed or variable) , then talk to your current provider and ask them to provide a competitive offer. “In all cases,” says Molder, “Unless it’s a crazy low interest rate that has been requested, they will come down. They always come down. There’s always room for renegotiation.”
Bank or broker?
The general belief is that brokers can offer a better rate than banks due to their access to multiple lenders. The Bank of Canada survey found that using a broker can result in getting a lower rate. Part of that is due to them getting multiple quotes from various institutions.
Being good and loyal to your bank makes no difference to your rate
Are you paying down your mortgage and cutting years off your amortization? That’s great but it won’t make a difference when renewing your mortgage.
Are you a loyal customer? Have you been with your bank for years and do everything with them? That also doesn’t count when it’s time to renew your mortgage. A 2011 Bank of Canada paper found that loyal customers may not get as good a deal with their bank as they would if they went to a different bank as a new customer. So if you’re looking for a better deal, considering going to a different lending institution.
Check the terms before you sign
The cheapest rate may not be the best rate so always read the small print before you sign. Make sure the rate you choose offers other options such as the ability to pay extra on your mortgage and clearly defines any penalties should you decide to break your mortgage early.
Simmons says, “Start shopping around about four months before renewal – don’t leave until the last moment.”