It pays to shop around at renewal time!

One finding of a survey by Canada Mortgage and Housing Corp. released last month was that 89% of consumers renewing their mortgage stay with the same financial institution. And 68% stay when they are doing a refinance.

The banks are doing more to retain customers but there is a pretty good chance you won’t get the best deal if you renew automatically.  Most of the time people do some rudimentary research before they go back to their lender. Not so long ago people would just take the renewal letter, sign it and send it back. It still happens but not as much anymore.  The posted rate on a five-year fixed closed mortgage today is 5.39% but clients may get offers in the mail as low as 4.04% in a renewal letter. The problem is a broker could probably get you 3.59% — meaning you just left 45 basis points on the table.

On a $250,000 mortgage at 4.04% paid monthly and amortized over 25 years, the monthly payment would be $1,320.48, with the interest cost during a five-year term at $47,014.79. Chop the rate down to 3.59% and the monthly payment drops to $1,260.09 ,with the interest over the five years falling to $41,658.85.
If you were crazy enough, or lazy enough, to take the posted rate, you would pay $1,510.01 monthly for the same mortgage and your interest cost would jump to $63,201.92.

Let’s just say it pays to shop around. So why don’t more people do it?

It takes time to shop around for a mortgage, so why not use a mortgage broker to do the work for you.  Also there is a perception that it’s difficult to switch banks, plus it will cost you some money to switch. Yes, it’s a minor hassle but for $5,000-plus, count me in. As for the costs, the bank you are switching to will often cover your legal costs. Even if it doesn’t or say you face a discharge fee of $300, that’s small price to pay upfront.  If you change the terms of your mortgage and refinance, it could cost you as much $700 to switch, something you would have to do if you have a home-equity line of credit or have a collateral charge on your mortgage.

If you are switching to a new lender it takes about 3 weeks to process so don't leave it until the last minute.  Also, most lenders offer rate holds between 90 and 120 days so start the process 4 months before your renewal date.  In a rising rate market you could save even more!