My daughter, Jessica, recently received her mortgage renewal papers in the mail. As the end of her first mortgage term grew near, the bank had automatically sent her paperwork for another 4 years.
Jess said her proposed new mortgage rate was 5.3% for four years. I thought I'd misheard, or maybe her young eyes were deceiving her. Maybe she needed her dad's new trifocals. Surely, she must have mistaken the 5.3% for 3.3%. But no, the rate truly was 5.3%, which is at least 2% above the market
Good grief, don't sign those papers! Jess and I talked about the rates currently posted in the paper, her doing online research, and her calling competing banks for quotes. She had used a mortgage broker when she initially signed her mortgage. But it is common practice on mortgage renewal for the bank to negotiate directly with their clients. Once Jessica did her homework she called the bank and questioned the rate. The bank on reflection told her that they'd inadvertently given her an old rate. Really like from back in 2009? Given my daughter's experience, here are eight tips for mortgage renewal:
- Do not automatically accept the rate proposed by your bank
- Prepare early --- don't let the renewal date get too close and lose your negotiating power
- Remember if you are changing financial institutions you'll have to requalify (which likely will not be a problem if your financial situation is the same or better as when you first qualified).
- Keep yourself informed, learn what the market is doing
- Get better than the bank's posted rate
- Watch out for the blend and extend. Tell the bank want to know the rates they are using and compare to market
- Don't be afraid to change lenders. There is no penalty at the renewal time.
- If you don't like to negotiate, use a mortgage broker, they will get you the best rate available
I ran a quick amortization schedule using Jess' proposed rate and the rate she ultimately received. The difference she would have paid in interest over the four years would have been approximately $17,000!
Mike Alleyne, Real Estate Agent