Many Canadians renew their mortgages like they renew their newspaper subscriptions: the renewal notice comes in the mail, they sign on the dotted line, and that’s that.
But homeowners should be more discriminating, say experts. A lot can change between the time you purchased your house and your first renewal — everything from interest rates to your job and family situation can change dramatically. Therefore, it’s good advice to re-evaluate your needs thoughtfully rather than blindly signing the renewal.
“It’s not simply about the best rate,” says Gerry Orr, a mortgage agent with Alberta’s Best Mortgage in Calgary. “Most mortgage brokers look at your mortgage as part of your overall plan.”
If it’s your first time renewing your mortgage, you should be aware of the options available to you. You may find that negotiating different terms or changing lenders not only saves you money but could shorten the life of your mortgage substantially.
Your renewal notice will arrive a few months before the actual renewal date, but some experts suggest thinking about renewing your mortgage about four months before then. While homeowners have the option of renewing online, by mail or by phone, a face-to-face visit with your lender can offer invaluable feedback.
“It’s wise to come into the bank and discuss what your options are with a person,” says Joan Bidner, manager of residential mortgages for TD Canada Trust in London, Ont. “They should reassess their needs and which term is best for them. People get to different stages of their lives, and they should re-evaluate and see what works for them.”
For example, if the homeowner is making more money, she may want to shorten the term of her mortgage, making larger payments and paying it off more quickly. On the other hand, if she is on a tighter budget than when she initially purchased her home, choosing a long-term mortgage with a lower, fixed interest rate may be a better option.
As always, it’s wise to compare your current situation against the terms and conditions of other mortgage terms to get the best deal.
Become a negotiating machine
When your notice arrives in the mail, it will include the most current interest rates. But don’t assume that’s the only way to go. And don’t be intimidated to negotiate with your lender for a better rate — after all, it’s in the lender’s best interest to keep your business.
In addition to looking for a lower interest rate, you can also bargain for more prepayment privileges. Remember, a few hundred dollars extra every month added up over the life of your mortgage can save you a bundle.
But don’t expect miracles when negotiating. In one expert’s experience, there is no rhyme or reason why banks will negotiate with one homeowner while letting another go without a fight. “(Banks) have room to negotiate but only with certain terms and products, so they only have so much room to negotiate,” says Anthony De Almeida, president of CanEquity Mortgage based in Calgary.
Broker it out
If you don’t have the wherewithal to haggle or shop for a better deal on your own, consider hiring a mortgage broker or specialist to do the work for you. “We have no allegiance to any one lender, so we will offer you unbiased information and we have access to everyone,” says De Almeida.
And whereas many lending institutions don’t post their lowest rates, mortgage brokers and specialists deal directly with the mortgage underwriting department of all financial institutions, which takes the profit margin out of the price, says Orr. It’s like comparing the price of a dress for a customer versus a store buyer, who buys it cheaper at wholesale.
And remember, if your current lender doesn’t offer better terms, you can pack up and change lenders.
A common myth about mortgage renewal is that once you sign on with one bank, you’re stuck with it to the end. But that is not the case. Still, it seems that Canadians are wary of changing lenders. Among homeowners who renewed or refinanced mortgages, 13 per cent changed lenders while 87 per cent stayed with the same according to a study prepared by the Canadian Institute of Mortgage Brokers and Lenders published in October 2005.
Younger people (ages 18 to 34) are more apt to switch than older people (older than 55), at a rate of about 19 per cent compared to five per cent.
Orr says he often must remind customers that changing lenders does not affect their credit ratings. “If you move your mortgage to a new instruction, it’s not going to affect your credit or your (financial) standing in general in any way.” He also adds that it’s not complicated to change, nor is it expensive. Lenders charge a flat rate of about $200 to switch institutions, but in many cases, that fee is waived or covered by your new lender.
Timing is everything
Homeowners can also renew early. This is advantageous if you find a low rate that you want to lock in. Some lenders will hold an interest rate as long as 120 days prior to the actual renew date, so it’s something to consider.
And if you forget to sign your mortgage renewal entirely, some mortgage contracts will simply keep the same rate until the next renewal period, so it pays to stay on top of it.