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Shopping for mortgage renewal can save you thousands

By
Real Estate Sales Representative with RE/MAX Hallmark Realty Group, Brokerage

 About to renew your mortgage for another term?   

 

To avoid a mistake that could cost you thousands of dollars, make sure you shop around first and learn what rates are available before you sign.

If you find better rates than what your current bank is offering, ask your bank to match the rate you’ve found. If the bank won’t do so, then you might consider switching your mortgage.

That’s the advice offered by Toronto Star Personal Finance Editor Adam Mayers in a column published in the newspaper May 25.

I would second that advice, based on my experiences and the stories I’ve heard from clients about how they have sometimes saved money by doing some research and shopping around, often with the help of a mortgage broker.

In the May25 column, Adam Mayers writes that while many Canadians will shop carefully for the best cell phone or internet plans, “when it comes to banking, they’re pushovers, a complacent fee-tolerant bunch, happy to get something, but not the best deal that they might.”

He says that’s because some people get special packages for having several accounts and services with their current banks, and these packages often do offer good deals. As a result, many people decide it’s too much trouble to look for a mortgage elsewhere, and they don’t bother doing some basic research that could save them money, even though it might seem like obvious advice.

Don’t assume that just because you’ve been a longtime customer, your bank will offer you the best rate that’s out there. Mayers says that a 2011 study by the Bank of Canada found that the people who tend to get the best deals on their mortgage rates are first-time buyers and those who switch to a new bank.

Existing bank customers who are looking to renew are not always as lucky, because Mayers says banks are always looking to attract new customers who will potentially buy other bank products. As a result, the banks will sometimes offer better deals to a new client than to an existing client.

It’s easy for homeowners to shop around, simply by contacting a broker or doing a quick check on one of the interest rate comparison websites mentioned in Mayers’ column, such as www.Ratesupermarket.ca.

Kelvin Mangaroo, president of that site, told Mayers that about 70 per cent of homeowners in Britain use a broker to find the best mortgage rates available, but only about 20 to 30 per cent of Canadians do that.

In his column, Mayers offered an example of how an interest rate comparison can save you money.

He used rates that were posted in late May, just before he wrote the column. Rates have changed since then, but the numbers still serve as an example of how shopping around can save you thousands.

Using figures for a $300,000 mortgage, the best five-year mortgage rate that Mayers found on the comparison website at that time was 2.84 per cent, offered through a broker that will match buyers to a lender. The cost of that mortgage worked out to $1,395 a month.

At the same time, Mayers wrote, the best discounted five-year fixed mortgage rate offered by a bank was 3.29 per cent. That mortgage would cost the homeowner $1,465 a month.

It might not sound like that much of a difference, but as Mayers notes, taking the lower-rate mortgage would save a homebuyer $70 a month, $840 a year, or $4,200 over the five-year term. A small monthly savings can really add up over five years.

If you are renewing and you have done some research on other rates, you can at least approach your bank with those numbers and ask if they can match it. Sometimes they will do so, but that isn’t always the case.

One of my clients told me about how he saved money a few years ago by going to a broker when it was time for his renewal. His mortgage had been with his longtime bank, and my client assumed that when he told his bank that a broker had found a better rate at another lender, his bank would match that rate to keep him as a mortgage customer.

He was surprised when the bank told him it would not match that rate. Although he kept his main bank accounts with his longtime bank, he switched his mortgage to the other lender and reduced the interest he paid each year by several hundred dollars.

To read the full column by Adam Mayers in the Toronto Star, click here

And if you’re looking for a mortgage broker in Ottawa who can do the rate research for you, George Hartsgrove, of Mortgage Alliance, has worked with many of my clients. George can be reached at 613-748-3838 or through www.mortgagealliance.com/georgehartsgrove

 

 

 

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