At one point or another, all of our $1.5 trillion in mortgage loans comes up for renewal. 75% of people do not shop around at renewal. THAT is insane! A back of the envelope calculation, assuming everybody has a five year term and saves (easily) half a percent is that we leave $1.5 billion a year on the table by not comparison shopping!
Last month I had an email from a gentleman from Kelowna with a great heads up for anyone with a mortgage. His mortgage comes up for renewal in March and his bank was offering to renew him early and was going to give him some reward type points as a bonus.
No – stop! The points might have a value of $50 bucks or so. That’s not enough to give up your freedom and lock yourself in this early. They did this in order to avoid him shopping around, and in case there’s another quarter point rate decrease.
Yes, rates will go up, but not between now and March, or even the spring. 60-days out is when you should start shopping around as you’ll be a free agent! Decide on a few things in advance between now and your renewal:
Do you think rates will go up in the next few years?
Will you still live in your home for another three to five years? If it’s yes to both, you want a longer term fixed rate mortgage!
Can you pay some money onto the principal before you renew? If so, your quotes will be for a lower amount.
Do you have at least 20% equity so you don’t have to pay the rip-off CMHC mortgage insurance? That’s your home value versus your mortgage balance.
Go to any online mortgage calculator and play with some payments. You know your balance, now try some ideas: Shorten the time by a year and you’ll see your payment goes up very little. It’s about $27 for a $200,000 mortgage. THAT you could afford. Try accelerated by weekly payments. That’ll cut four years or more from your time and a huge amount of interest. Just use the posted rates that you see less half to three-quarter percent and you’ll be close. Two of the better calculators are at CMHC and Royal Bank, among others.
Then, get three quotes in writing: One from a credit union, one from your existing lender, and one other.
The average person that books travel online visits over eight sites before they book. Yet 75% of people just sign the renewal of their mortgage. Don’t be one of them! Saving $100 on travel versus $10,000 or more on your renewal makes no sense!!
There is an exception to this shopping around: If your credit has turned bad, or your other payments have jumped a lot – you won’t be in a position to move your mortgage. You don’t even want your current lender to re-run your credit report or to re-work your debt ratio that can’t exceed 44%. Sign a short term renewal, then get on with fixing your credit issues and paying down your other debt before the next renewal.