Tag Archives: mortgage renewal

Mortgage Renewal Alert!

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.

A $19,000 Mortgage Mistake

As the sub title of the It’s Your Money book says: tools, tips and trick to borrow smarter. Today, I have a huge insight into the tip for you, and the trick of the banks to share with you.

On a $250,000 home purchase, a good rule of thumb is that you may be able to negotiate a discount on the sale of around three to five percent. At five percent, that’s a saving of $12,500. A great deal, but nothing compared to the savings, or wasted money, that can happen with your mortgage.

Last week, a listener e mailed me, and he was rather choked, to put it mildly. Last year, he signed a five year variable rate mortgage with his bank, with an option to convert to a fixed rate at any time. Seems like a good idea on the surface, doesn’t it? He had the benefit of the low interest rate, but when it started to move up, he had the chance to lock in a fixed rate for the rest of the four years left.

Well, it seemed like a good idea at the time. I’m very proud of this listener, because, before he went back to his bank to convert this variable rate mortgage to a fixed one, he got two other quotes. Very smart. So he knew that he could get a 3.9% five-year fixed rate in the market.

Yes, this listener also knew he was locked into the other four years with his bank. His shopping around wasn’t to move his mortgage, because the penalties would eat him alive. It was to be ready to negotiate the fixed rate on the last four years left!

But, and it’s a big but: He didn’t read the fine print when he signed the five year mortgage. Yes, he could convert at any time to a fixed rate, but it was at the POSTED rates! Let me put that another way: There is no negotiating when you choose to switch the variable rate to a fixed one. It will be at full sticker price. And like car purchases, who pays sticker? Well, he did!

The difference between the negotiated rate in the market and what the posted rate was with his lender is now costing him $19,000 in extra interest for the next four years! The banks will offer a very attractive variable rate on a five-year mortgage, with the option to convert to a fixed rate. But the catch, and it’s an expensive catch, is that the conversion will be at the full posted rates. A discount now in return for huge additional profits later.

$19,000 is a staggering amount of extra interest that was totally unnecessary if the listener had asked the question and read the documents he signed with the renewal. If your mortgage is up for renewal, you need to get at least three quotes and ask a lot of “what if” question. If you’re buying a home, you’ll need to spend more attention to your mortgage options and choices than negotiating on the purchase price. After all, you buy the home once, but have to pay interest for decades!