Tag Archives: mortgage renewals

Zig When Others Are Zagging

We’ve talked about that logic a number of times over the years when it comes to financial tools. These days – right now – it’s really critical that you think about doing the opposite of what financial institutions, mortgage lenders and utility companies want you to do.

With the high utility rates last fall, the marketing was to get you to lock in your rates “before they go higher.” The pitch was to have you think you’re getting a good deal at the time. Well – maybe. And I certainly know people who took a long term locked-in contract. Fast forward six to nine months and the rates are down significantly from those “good deal” fixed rates that large numbers of people are now stuck with.

What you will not see or hear in any bank advertising is any campaign to get you to lock in your savings. Term deposits, CDs, whatever are at a pretty good rate compared to what they were before the last two years of rate increases. Are rates going down as early as this winter? Depends on which economist you ask. Are they close to peaking and will at least stabilize? That’s a pretty reasonable bet, according to most economists. So, at this point, the fixed savings investments are about as high in rate as can reasonably be predicted. That’s why the last thing financial institutions want you to do is to now lock in those high/higher rates. That would mean they’re out a lot of interest payments to customers when they drop.

Since their profit is the spread from what they pay out to depositors to what they lend out, they obviously want tiny savings rates and high lending rates.

Who are the credit card issuers that have “won” the rate battle so far? The ones who sold variable rate cards. Why? Because they go up with every prime rate increase. What are they going to market to you now? Take that variable card and consider locking it in for a fixed rate. Why? Because rates are or should be close to the max right now. Your zagging would be their winning!

Mortgages work the same way. What you WILL see right now are ads to get you to lock in today’s rates. We’ve talked about that around a month ago or so – how long a term should you take on a mortgage renewal to be ‘up’ again when rates will/have/start to come down? If mortgage lenders have their way, everyone would take another five-year term right now.

Zig when they want you to zag: Lock in savings at a high rate – consider a fixed-rate gas or utility plan (if you must) at low rates and have your mortgage term land in the sweet spot when rates are down (again).

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 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 good sites are 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.