ROB CARRICK The Globe and Mail PublishedThursday, Jun. 18, 2015 6:02PM EDT
The call display on your phone says it’s your bank calling.
If you have a mortgage coming due in the next six months, pick up. Banks can be intrusive with their client calls and telemarketing, but talking to them about an early renewal of your mortgage can save you a lot of money.
Long-time homeowners will tell you that over the life of a mortgage, you’ll almost certainly have to renew at higher rates at some point. But for the past six years, homeowners have been in the fortunate position of being able to renew at similar or lower rates. This won’t continue indefinitely, and that’s why renewals occurring through the remainder of 2015 are crucial.
Renew early with your current lender, or find a better deal elsewhere. “This is your opportunity to be a free agent, just like in sports,” said veteran mortgage broker Vince Gaetano of MonsterMortgage.ca. “This could be your big payday, so shop around.”
Early renewals can be one of the most painless of mortgage transactions. You get out of your current mortgage with no cost or penalty and move directly into a new mortgage with the same lender. “They make you feel like a million bucks when you leave,” Mr. Gaetano joked.
Canada Mortgage and Housing Corp.’s 2015 mortgage consumer survey shows that 60 per cent of people renewing a mortgage arranged the renewal in advance of the maturity date. Most did it within three months of renewal, but a fair number did the deal as much as six months ahead of the scheduled date.
Banks used to take their sweet time in sending mortgage renewal notices to clients on the principle that a short time frame reduces the time to shop around for the better deals that are often out there. But Mr. Gaetano said banks today are reaching out to clients six or more months in advance of a renewal. The point is to lock up clients for another five years and prevent them from shopping around and defecting.
“The tactic the banks are using is to say, ‘Listen, you’re paying 3.49 per cent right now on your five-year term. I can early renew you into 2.69, save you interest over the next six months and lock you in now,’” Mr. Gaetano said.
Lowering your mortgage rate immediately is one reason to jump on an early renewal opportunity. Another is to get ahead of any rate increases to come. U.S. rates are expected to rise this fall, and that could put a bit of upward pressure on mortgage rates here. It may happen, it may not. But if you’ve renewed your mortgage early, you’re covered.
Mr. Gaetano said that if you’re planning to live in your house for another five years or more and don’t see a need to refinance or break your mortgage, then an early renewal through your bank is fine. But if you foresee the possibility of breaking or refinancing your mortgage, then a renewal offers a chance to look elsewhere for better terms.
He’s referring here to the nasty penalties the banks charge customers who break a mortgage before it comes up for renewal. Read more about those penalties online. Alternative lenders have less aggressive penalties while offering rates that are at least as good as the banks.
You can’t do an early renewal if you plan to change lenders. But you can get a new lender to hold a rate for you for 120 or more days in advance of your renewal date. “This gives you an insurance policy in case rates rise,” Mr. Gaetano said.
In CMHC’s mortgage survey, 55 per cent of people said they renewed early to avoid rate increases. Another 19 per cent said the reason was that their mortgage professional convinced them it was the right decision. It’s worth a reminder here that your bank benefits as much as you do with an early renewal. You get peace of mind; they get you cinched down for another five-year term.
The most striking finding in the CMHC survey was that not even half of renewers negotiated different terms than those presented in the renewal documents their bank sent. What a waste. Mortgage renewal statements mean it’s time to call or visit your bank to discuss rates and terms. If your conversation doesn’t go well, you have options.
Focus on Mortgage Renewals
Canada Mortgage and Housing Corp.’s 2015 mortgage consumer survey offers these insights on mortgage renewals:
– 60 per cent renewed before their mortgage maturity date;
– 61 per cent said they were “totally satisfied” with the decision to renew early;
– almost 50 per cent negotiated different terms than those presented in the renewal notice from their lender;
– 49 per cent of those renewing set their payment higher than the required minimum; and
– 32 per cent made a lump-sum payment, increased their regular payment or did both since their previous renewal.