The (quietly) raging battle behind the scenes over your Mortgage Renewal – things to know & understand.
As you approach your mortgage renewal date, there is often a letter or a call from your current lender that arrives up to 6 months in advance of the actual renewal date. Typically making an offer to lock in to ‘today’s low rates before they rise‘ along with a mention of avoiding ‘renewal fees’.
25 years of declining rates and that ‘lock in now before it is too late‘ line still works on many. Unfortunate. Over the past 12 months fixed rates have for the most part trickled downward with each passing month, and the longer one has waited the better they have done. Assuming the correct guidance.
Renewal fees are waived 99.9% of the time – if you simply ask. Or better yet enlist your Mortgage Broker to assist.
- A deeper conversation should be had with an independent Expert to discuss you future plans and what sort of strategy makes sense for your situation.
For clients in a ~2.50% or better variable product, or perhaps a 2.49% 2 year fixed taking time to evaluate options is prudent. There is not currently any better rate to worry about ‘early renewing’ into in these cases.
One can easily insulate themselves from the risk of rate hikes during the final 120 days leading up to the renewal date with a quick call to their Mortgage Broker.
That call will also offer a reality check on where rates are truly at. Typically renewal letters are far from the sharpest rates available in the market, in fact they are far from the sharpest rate that your current lender has on offer.
Perhaps most importantly a discussion with a Mortgage Expert will likely address potential issues or events not currently top of mind. i.e. Is a move being contemplated in the next 6-18 months? Would it be wise to change your mortgage product, change your mortgage lender? All considerations depending on variables around each clients scenario.
An excellent example being an RCMP officer whose mortgage we transferred from Credit Union to National Lender at renewal time, just prior to the clients transfer to another Province. This avoided the inevitable penalty that would have been incurred as Credit Unions cannot transfer a mortgage to another Province.
Knowing limitations is important. As is understanding some of the numbers that drive lenders actions.
RENEWAL TIME MATH!
96% of borrowers renewing their mortgage in the next six months will see a lower rate than they currently enjoy.
However the initial offer from their lender will be ~.30% above market. (often higher than this)
70% of mortgage holders will sign the renewal letter their lender sends them without making an inquiry with an independent Mortgage Broker.
Engage an Expert!
40% of all new mortgages in 2013 were obtained through a mortgage broker, while 42% were obtained directly from the lender.
- Average Mortgage balance in Canada ~170K @ a premium of .30% over 5 years = $2548.20 bonus profit for the lender!
- Average Mortgage balance in BC ~285K @ a premium of .30% over 5 years = $4272.20 bonus profit for the lender!
- Average Mortgage balance in Vancouver ~421K @ a premium of .30% over 5 years = $6310.80 bonus profit for the lender!
With ~650,000 mortgages on each big banks books, and ~130,000 renewals per year things add up fast.
@ 70% of clients signing without questioning = 91,000 files per annum.
91,000 x $2548.20 (CDN Average) = $231,886,200.00 ( over 5yrs)
$46,373,600.00 per year in pure additional profit to each big banks bottom line – because we are not asking questions!
The BIG takeaway here for many – Buy Bank Stocks!
The Bigger takeaway – You are the Boss! Without you and your mortgage business the lender cannot please the shareholders (their Boss).
You are the one with the power, you are the one putting profit in the lenders pockets. Embrace and wield that power wisely. Most of us feel like the lender gave us the gift of granting us a mortgage, the truth is we have given the lender the gift of our (profitable and secure) business.
You have the power, the lender wants what you have.
Embrace you Mortgage Expert and put them to work for you!
Footnote added May 25th – It seems I was not the only one writing something on this topic yesterday; 70% for Britons use a Mortgage Broker, Those clever Brits.