Is your mortgage due for renewal? Not so quick. Most of us hurry to sign the mortgage renewal letter which is a mistake. It has been reported that over 70 percent of mortgage holders in Canada sign the renewal letter as soon as they get it. What are the repercussions? A higher interest rate and a mortgage product not best suited to their needs.
It’s well known that the so-called “Big Banks” do send their renewals at a posted rate. The lenders know for a fact that the majority of homeowners are too hard-pressed to raise queries or negotiate for better rates.
You need to realize that during a mortgage renewal, you negotiate from a position of strength as a result of a decrease in your principal amount and a surge in your home’s value. Lenders categorize you as a low-risk borrower, and accordingly, you should get the best possible rates.
Such may not happen if you hurriedly sign your renewal with your current lender.
This article aims at exploring the 4 things any homeowner needs to know about mortgage renewal.
1. You can work out a new rate with your current lenders
Most lenders will never propose their best rates at first. Knowing this can be frustrating and quite insulting when most of us feel the bank’s efforts should be geared towards keeping their business. However, the banks are aware that clients won’t look for alternatives or attempt to broker for a better rate; thus, they quote a higher rate than their best offer.
Pragmatism is necessary during negotiations. You can’t ask for rates well below what any lender would offer despite the lender’s flexibility to reduce their rates. Arming yourself with practical cases of what other lenders are providing is a good start. This requires a little bit of research.
Your bank will figure you are a savvy homeowner looking for the best possible situation.
2. There is value in obtaining a second opinion
Most people look for three or four options before purchasing cars and electronics, yet they never do the same for their most valued asset.
- We recommend you get an professional opinion preferably from a mortgage broker.
- You will determine the products that best suit you if job transfers come in the future, you have a growing family or you may need access to your home’s equity sooner than later.
A second opinion enables you to make better judgment and is worth the effort.
3. Switching lender during renewal isn’t as costly as you may deem
The fear of incurring extra expenses is a key reason why people prefer to renew mortgages with their current bank instead of swapping for a better deal. This fear is unjustified, as changing lenders isn’t difficult.
Lenders demand income documents as proof you can afford your mortgage and expenses such as your current mortgage renewal document and property taxes.
You need not agonize over legal fees as your new lender will cover the costs.
Where an appraisal is necessary, $200-300 is enough to cover the expenses, and in most cases, it’s offset by the savings in the renewed rate.
4. Loyalty to your lender doesn’t affect your rates
You have dealt with the same bank for ages, you do just about everything with them, and it makes sense that they would offer you the best possible rates, right? Wrong.
A study by the Bank of Canada revealed that new customers tend to get better rates than loyal long-time clients.
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