With a mortgage term eventually there comes a mortgage renewal. Mortgages are typically offered with terms up to ten years. When your term is complete, your rate expires and it is time to renew your mortgage. At this time you will also negotiate a new rate.
When purchasing a home, many people spend a great deal of time shopping around to find the best mortgage rates in Ottawa. Unfortunately, many do not invest the same amount of time shopping around at renewal. As a result, they may accept their lender’s less favourable renewal rate offer. Usually the lender will reach out to within 120 days of the renewal date with an offer. Sadly the rates offered are not very favourable.
Many feel their loyalty to a lender will be enough for their lender to offer them the lowest mortgage rates. Others do not have time or the interest to start the rate shopping process again at each renewal.
Lenders can take advantage of this at renewal. Lenders know that 80% of people simply sign and return the first renewal offer.
The Bank of Canada confirmed that those who switch lenders at renewal or those who renewal with a mortgage broker save more then those who renew directly with their lender. Each point saved on the rate counts. A 0.2% savings on a rate, on a $300,000 mortgage, will save you over $2630 over the next 5 year term for example.
Many times in a rising rate environment, a client will receive their renewal notice from their lender just in advance of their renewal date. Unfortunately, this means the rate offered will be higher then if it was send out months in advance.
In decreasing rate environments, I hear from many clients that their lender has called them to review early with a ‘limited time offer’. Usually this offer needs to be accepted right away and they will need you to renew early to take advantage of the offer. This sadly limits your time to shop around, the offer is usually not very favourable compared to mortgage broker’s options and if you have a lower rate that you can still can hold onto for a few months before you renew, you will lose those months with the lower rate, which can add up.
Bank’s and lenders have many ways to help boost profits for their shareholders. Unfortunately the billions of dollars of profits bank’s make each year is from the fees and rates we pay.
I look forward to keeping more of that money in your pocket at renewal and finding you the best mortgage rate for your needs.