9 Secret Canadian Mortgage Renewal Tips
I have been a mortgage broker in Edmonton for over 13 years and I help people with their mortgages cross Canada, and one of my biggest pet peeves is when a person renews their mortgage with their bank without question. The trick that most people don’t know is that, this is when the bank can really get you…. When I say get you, I mean that they can offer you any rate they wish and you can choose to sign that document and carry on your merry way. It sounds great, but this could be costing you a ton of money in interest over the years. This is why we wrote the 9 secret Canadian mortgage renewal tips your bank does not want you to know.
As a mortgage broker, I get to see the lowest rates available in Canada on a daily basis. And of course with that being my business, I obsess about it. I was really surprised a few weeks ago to get a letter in the mail from my mortgage company. It was my mortgage renewal, five more years on the mortgage was already up! I opened up the package and was surprised to see that the 5 year fixed rate they were offering me was much higher than the rates I was offering my clients at the time. To put this in perspective, my current 5 yr fixed I offer my client at this time is around 2.69% and the rate the bank offered me, their long term client with great credit was 3.29%. WTF, that is a huge difference! As an example, if you have a 400k mortgage, this could cost you thousands of dollars per year.
I would much rather spend my money on my next vacation! The fact is that your bank is a business, they are the business of money. And they are pro’s at making money…..off you!
Obviously this is not the only way they get you, but it is a way that our mortgage team can help you. If you have a mortgage in Canada that is up for renewal call us first! We can help you negotiate that rate down or switch you to a lender that has a lower rate.
9 secret Canadian mortgage renewal tips your bank does not want you to know.
1. Discretionary discounts
The very first person you speak to when you have a mortgage renewal should be one us, lol. If it is the lender first, you should know that the person you speak to has minor discretionary power to give you a slight discount on the rate offered. So for example if you are quoted 3.45% as a rate, that person should be able to bring the rate down to 3.4%!
I recommend continuing to negotiate at this point, as they can move more than that. It will normally have to be escalated to management or the banks retention department.
2. Turn a rental into an owner occupied
Mortgage rates for rental properties are higher than mortgage rates for owner occupied properties.If you circumstances have changed and you have moved into a property that was once a rental, you are now eligible for owner occupied rates! Don’t forget about this like the bank wants you to. It can save you thousands!
3. Switch to a cheaper bank
Your bank wants you to accept the first offer they make you, and unfortunately most people do. While this bank is trying to make money on you, other banks will fight for your business and destroy the rate you are being offered. You can switch banks and get a lower rate most of the time! As a mortgage broker, I am aways proud when I can save our clients money. During renewal time, it is one of our best opportunities to save!
4. Professional negotiators
We have been negotiating with banks for a long time, we are professional negotiators and know how far we can push a bank. If you allow us to take care of your mortgage renewal, you will save money on interest and the stress of negotiating will be on us. All you have to do is sit back and chill!
5. Extend the amortization
Renewal time is the best time to decide if you need lower payments. You can achieve this by stretching out the amortization (years to pay off).
6. Switch to Variable
Sometimes it is worth it to switch to a variable rate. A knowledgeable mortgage broker can recommend if it is worth it to do so. As an example, if you tell me that you might choose to sell in the next few years and downsize. I would suggest you go on a variable rate. The reason for this is the payout penalties are smaller on a variable rate mortgage and the actual rate itself is pretty good right now. We will do the interest calculations for you so that you can make an informed decision.
7. Time for line of credit HELOC
After your mortgage renewal, you should have built up some equity in the property. Did you know that there are mortgages with a line of credit portion on them? In other words as you pay down on a mortgage, more credit becomes available at a super low interest rate! I have one of these and I use the line of credit for investments. This is a strategy of using your money to make money and the rich all use this method. Renewal time is when you should start talking to us about this option.
8. Pull money out to pay debt
When your mortgage is up for renewal you can choose to pull extra money out of the mortgage to pay off debt! This works out amazingly for many people as it lowers their overall monthly debt. I just helped a client of mine do this. She had $8000 left on a car payment with and $900 per month payment, she also had a line of credit at $15k with payments of around $500 per month and $10k in credit card debt $600/mth. Her current mortgage payment was $1300/mth. I consolidated all of her debt into a total payment amount of $1420/mth saving her $1900 per month! If this situation sounds familiar you need to call us now.
9. The open mortgage scam
If you do not sign the paperwork from the bank in time, your mortgage will go into an open mortgage. The rates on this are super high and the bank makes a ton of cash this way without you even realizing it. Some people even forget and the mortgage stays this way. To give you an idea of the difference in rate, an open mortgage right now can be as high as 7% when the 5 year fixed terms are only 2.69%! Crazy right….
Common Questions about mortgage renewals in Canada
1. How does a mortgage renewal work in Canada?
Around 4 months prior to your mortgage renewal, you will receive a letter from your bank or financial institution letting you know that the mortgage term is done. This term is usually 5 years for most people. The form will usually be a simple form with a lot of small print and it will have a date that you will have to send it back by. This form is actually really good at sales as it will make you feel the pressure to just get it done and most people never read the fine print. Sometimes they will even offer you a slight discount for renewing early.
Keep in mind these are subtle sales tactics that the bank is using on you, and I highly recommend consulting me first before signing anything. We will read the fine print and detail what is really important for you to know in regards to the mortgage. We will also let you know if we can get you a better rate and exactly how much we can save you in interest over a term.
The bank does not take into consideration that a lot can change in 5 years and your mortgage goals may be different than when you first started. For example over the past 5 years our mortgage goals have changed because we are aging and want to pay the mortgage off sooner. When my mortgage renewal was up last I shortened the amount of time it would take to pay it off so I could meet my new goals.
2. Can you be denied a mortgage renewal?
Yes you can be denied a mortgage renewal. When you first applied to the bank, your circumstances may have been good credit and repayment history. If for some reason that has changed and you have proven to a lender that you normally cannot pay your mortgage payments, they can opt to not renew the mortgage. This is when the foreclosure process starts for many people unfortunately. It puts the mortgagee in a mad scramble to find a lender and gives you a set timeline to get that done before they take legal action.
If you ever find yourself in this situation, there are tons of options for you. Just make sure you inform us as soon as you get that letter. You don’t want to have to make decisions on this in a scramble. We can help you move the mortgage to a new lender even if you have bad credit in most cases. Last year I had a client in this situation because of a bad divorce. Neither the husband or wife were making the mortgage payments and the house went into foreclosure when the lender refused the mortgage renewal.
In this situation both husband and wife now had bad credit, however there was around 70k in equity in the house. I was able to get them interest only payments $500/mth from $1600/mth for a 2 year term and I will eventually help them move back to a normal mortgage once their credit improves.
We understand things change and do what needs to be done to fix it.
3. How do I negotiate my mortgage renewal in Canada?
You can try to do this yourself, or you can call us to do it for you. The problem with doing it yourself is that you have much less leverage compared to us (a mortgage broker) doing it for you. The bank already knows that most people might choose to do it themselves and most people will just stay with them. It is one of the bank tricks that make them a ton of cash!
4. Can I switch lenders when my mortgage is up for renewal?
Yes you can easily switch lenders if you choose to when your mortgage is up for renewal. This is half of our business, saving people money by switching their lenders.
5. Will my mortgage automatically renew?
There is a type of auto renewal that happens when you mortgage is up for renewal. Basically you will go into an open mortgage and the rate is really high. A lot of people just forget and leave it this way. To actually renew the mortgage you have to sign the document and return it to the lender.
6. Can I renew my mortgage early?
Yes you can, and sometimes you can save thousands in interest by renewing early. I recommend looking at this a year out. So a year before your mortgage is up for renewal, you can call us and we can start doing the math and research needed to help you make the smartest decision on the mortgage. By informing us it also give you the opportunity to lock into the best rates over a year time frame. So as an example, I used this strategy on my last mortgage renewal.
I knew the renewal was a year away, I also know that rates go up and down throughout the year. I waited until one of the lenders had a big promotion on rates and locked my new mortgage in at that rate! The best part is we will do the research for you!
7. Do I have to accept the mortgage rate my bank is offering?
No you do not have to accept the rate the bank is offering, you can have us negotiate the rate with the lender. Or we can help you switch the mortgage to another lender that will give you a lower rate.
STOP MAKING MORE MONEY FOR THE BANK!
Sean and Radika Rampersaud are a family team of Edmonton mortgage brokers. They specialize on helping their clients to get the lowest mortgage rates in Canada by leveraging high volume and multiple lenders. “We want to help our clients not only to get the best rates, but also to make the home buying process easier.”