With a mortgage comes a mortgage renewal.
In Canada, mortgages are typically offered with terms up to ten years. When your term is finished, your rate expires and it is time to negotiate a new rate.
Many Canadians spend a great deal of time shopping around to find a favorable rate when purchasing a property.
Usually your lender will reach out to you within 120 days of your renewal with an offer for you. Sadly the rates offered are not very favorable. Unfortunately, many do not invest the same amount of time at renewal shopping around and will renew with their current lender’s less favorable rate offer.
Many feel their loyalty to a lender will be enough for their lender to proactively offer the best rate and 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 renewal offer and documents .
The Bank of Canada confirmed that those who switch lenders at renewal or those who renewal with a broker’s series 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.
When you are up for renewal you have two main options:
Many times in a rising rate environment, a client will receive their renewal notice from their lender just in advance of their renewal date which unfortunately means the rate offered will be higher then if it was send out months in advance.
I hear from many clients that their lender has called them with a ‘limited time offer’ that needs to be accepted right away. Also 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 banks make each year is made up of the fees and rates we pay.
I look forward to keeping more of that money in your pocket at renewal and not in theirs.