By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, February 14, 2023
While most Canadians spend a lot of time and effort shopping around for their initial mortgage, it’s not generally the case when it’s time to renew. Instead, many people are complacent and are happy just to renew, even if it’s not the best deal that they can get.
In a recent survey from BNN Bloomberg, 51 per cent of Canadians polled said they did not plan to change lenders to get a better mortgage rate when renewing, and another nine per cent said they did not even know it was an option.
As well, 52 per cent of respondents said they have a plan in place to deal with higher mortgage payments, with 38 per cent of those indicating they will cut back on their spending, nine per cent saying they will use their savings, and two per cent planning to take on additional debt.
Finally, two per cent of respondents said they would need to sell their house due to higher mortgage rates.
It pays to shop around
Most borrowers simply sign and send back the renewal that is first offered by their existing lender, without shopping around for more favourable terms and rates. Lenders know this, and for this reason, they offer a decent rate. But if you complain or show them better offers, they will get more competitive. For that reason, trusting your lender to offer a favourable rate up front is the worst thing you can do at renewal.
Instead, you can engage the services of a mortgage broker at renewal time who will ensure you receive the best mortgage options and rate catered to your specific needs. Just because your lender had the best available product or rate for you one, three, or five years ago when you obtained a mortgage, it does not mean the same holds true in today’s market.
With products and rates changing on an on-going basis, it’s difficult to know what the best offering is for your unique situation without doing some investigating. A mortgage broker makes the process easier. They look at every rate and product change from each lender, including banks, credit unions, and mono-lenders (lenders that only work with mortgage experts) to find the best deal for you. The services of a mortgage broker are free because they are paid by the lender based on the mortgage amount rather than the interest rate.
It’s important to remember that the interest rate is not the only factor you should consider. Finding the best mortgage with favourable terms also matters. A portability option, pre-payment privileges, including lump-sum payments, the option to increase your mortgage payments between 15 per cent and 20 per cent without penalties, and how penalties are calculated if you break the term of the mortgage, should all be considered.
Below is an example of how an interest rate comparison can help you save thousands of dollars.
By shopping around at renewal time, the savings were $8,760 (over five years) in mortgage payments by increasing monthly cash flow, plus an additional $12,256 (in interest costs and by having a lower balance at maturity after the five years).