According to a study conducted by the Bank of Canada, sticking with the same lender when it’s time to renew is not a good idea. The study found that those loyal to their lenders ended up paying more.
Too many mortgage holders just look at the mortgage renewal agreement and sign the papers, without ever comparing with other institutions. If your mortgage is up for renewal, you should seriously consider shopping around. Many homeowners think that their lender will give them a reasonable rate. Some believe they will get preferential treatment because they are sticking with them, but this is not true. If you just sign the renewal papers with your existing lender, you will likely pay more. Most lenders do not offer an incentive for loyalty. There is no guarantee that the rate you are being offered is the best that is available.
If you think that a small difference in interest rates is not enough to bother with, think again. Even a small shift in your rate will save you a lot of money. For example, if you have a mortgage of $450,000 amortized over 25 years, your monthly payments at 2.54% would be $2,024.82. Should you find another lender offering a rate of 2.19% your monthly payments would drop by $77.78. Add that up over five years and you are looking at $4,666.80 in payments alone, never mind how much more would come off the principle of your mortgage.
The less interest you pay, the more the principle of your mortgage comes down each month.
Interest rates can vary widely between lenders and variances as shown above are not unusual. One of the best ways to look at a range of rates and terms of mortgages is to work with a mortgage broker. The same Bank of Canada study found that mortgage brokers are best at getting good rates. They do not have a vested interest in one particular product, as a bank does. Instead, they earn a fee when they find you the best possible deal and you agree to take out a mortgage with a particular lender. Brokers have many lenders, both private and public, that they can call upon. Their business is very competitive, so they need to find you the best deal or someone else will. As a result, business through mortgage brokers is on the rise, particularly with young homeowners who are savvy with the internet. They are more comfortable with alternative or novel approaches to saving money. However, many diehard bank customers are willing to try something new if it will save them money.
A qualified mortgage professional will do the work for you and then present you with the options. This can include better terms too it you are not satisfied with the repayment options your lender currently offers. Many lenders are extremely flexible about repayment options. They typically include weekly, bi-weekly and accelerated payments as well as the ability to apply lump sums against the principle.
If you have questions about your Mortgage renewal and how to find the best rate, contact us here to speak to one of our mortgage professionals.