When the time comes to renew your mortgage, do you book an appointment with your current lender, sit down and accept their first renewal offer?
That’s what a sizeable minority of borrowers do—and it’s a big mistake, warns real estate agent Miguel Melo. It’s estimated that anywhere between 30 and 40 percent of clients accept the first renewal rate that’s offered.
Just like a regular mortgage, renewal rates are negotiable. You do have some power here, so do a bit of research and find some other rates online; you can use them as leverage to get your lender to match competing offers.
But what if you do this and they don’t budge? If the rate is more than 0.05 to 0.10 percentage points from the best available rate for a similar (or better) mortgage, consider leaving.
Just make sure that you’re comparing similar products, because several features of a mortgage (such as property location, for example) can significantly affect the rate. Also be aware that switching lenders does take time and costs money. The closing costs on a “switch” can range anywhere from $0, if the new lender agrees to pay all of your costs, to over $1000.
To ensure you make the best decision, engage the services of a mortgage broker before the time comes to renew. They’re an excellent source of information and know about deals that are specific to the area you live in. They can also break down the terms of the contract for you, so you understand exactly what you’re agreeing to, and help you get the most out of low mortgage rates. Best of all, if you are well qualified, you won’t be charged any out-of-pocket fees.
Usually, your mortgage provider will contact you 30 to 90 days before maturity, offering an early renewal rate. “During this time, you should call your lender—and at least two others—to compare rates,” says Miguel Melo. “Not all lenders are the same and doing some homework can save you thousands of dollars in interest costs.”
In some cases, it can be easier to go ahead and sign a renewal paper with your current lender, instead of re-applying with a brand new one. This might be wise if, for example, your financial circumstances have changed or you worry you may not qualify to switch lenders.
Because lenders are hoping that you will renew with them instead of leaving to go to another company, the first renewal offer is typically a fair one. After all, it’s cost-effective for lenders to renew your mortgage, rather than going to the trouble of setting up a new one. That’s why with some lenders their renewal rates are lower than their new client acquisition rates. These rates are attractive because they really want to lock you into another term.
If you’re in need of a mortgage broker, ask around. “Finding a mortgage broker is very similar to other lines of business. Word of mouth is the best compliment anyone can receive.”
Miguel Melo recommends keeping in regular contact with your mortgage specialist annually; it’s the best way to understand current interest rates, he insists.
“Everyone has different financial goals for their families. Your situation may change quickly (as we were all impacted by Covid) and having a trusted partner can help you weather any financial storms.”
He recommends starting to look at your mortgage statements six months prior to maturity. Just set a reminder on your phone for an annual check-in, as well as at the 6-months-before-maturity mark. That little bit of time spent planning for your future can save you thousands of dollars in interest.
If you’re still not sure who to consult, you can always reach out to your realtor. They can provide suggestions and recommendations for mortgage professionals they’ve worked with. You can meet with them, interview them, and determine who will give you the best service and the best mortgage.
For more information, visit Miguel Melo, Realtor or call 905-715-4168.