It's Your Money  

Ways to negotiate a better mortgage with your bank

Getting a better mortgage

Did you know you might be able to negotiate a better mortgage rate with your bank?

Most people mistakenly believe that when they receive their mortgage renewal offer, they must either accept it or switch lenders.

While switching lenders should always be an option worth considering, many mortgage lenders send out standard renewal offers that may not take into account your specific situation. Most mortgage renewal proposals are up for discussion, you just need to know the best way to go about it.

There is a wide selection of mortgage lenders out there, all vying for your business. If you have steady income and a decent credit rating, you may be able to find a different lender willing to offer you a better deal. And your current lender knows this.

One of the main reasons many people accept their lender’s first offer is for the convenience. In many instances, you don’t have to do anything — your mortgage will be automatically renewed, with the terms and mortgage interest rate that your bank has offered. This could be an extremely costly convenience, however.

Others think that it will cost too much to switch lenders. And there can be several fees that you may need to pay to switch lenders including appraisal costs, assignment fees, legal fees, etc.

While this can seem like a lot, many lenders will cover some of the costs if you switch your mortgage to them. And, typically, the savings you will make with a new mortgage dwarf these costs.

If your current lender offers you a very good rate, it might make sense to stay with them. However, mortgage interest rates offered in renewal letters can be as much as one whole percentage point above what you might find elsewhere (and posted bank rates are always high).

If your income has decreased considerably, you may not qualify for the same mortgage with a new lender. So, while this may prevent you from signing up with a different lender, it shouldn’t stop you from negotiating.

The difference between the bank rate you’re offered and what you could actually get can be as much as one per cent. Even a difference of 0.3 per cent (which is often the very least you can get on improving your bank’s offer) can save you thousands.

But how do you go about negotiating? Try these simple steps:

Step 1 - When you receive your mortgage renewal letter from your bank, the first step is: do not ignore it. If you don’t contact your lender to confirm the term and rate you wish to proceed with, you may be automatically renewed into an open mortgage term, which carry significantly higher rates than standard closed-term mortgages.

Step 2 - Study the offer thoroughly. Make sure you fully understand:

• The mortgage rate being offered

• The period of time the term covers (for example, five years)

• Prepayment privileges (for example, 15% prepayment per year)

• The amortization period (the length of time it will take for you to pay off the mortgage)

Step 3 - To prepare yourself to negotiate mortgage rates, carry out your research with an internet search for “best mortgage rates + your city/province”. Look at several sites to find the best offers available.

Step 4 - Make sure you’re comparing apples to apples and look for mortgages that fit the one described in your renewal letter. For example, if your bank is offering you a five-year fixed rate on your uninsured mortgage, make sure that this is the kind of mortgage that you are comparing it to.

Also, be aware that mortgages can have different conditions. Some low-cost lenders won’t allow much in the way of prepayment privileges, for example. Some can also have very high lending criteria (for example, credit scores above 740 and loans to salaried borrowers only, so no self-employed applicants).

And if you’re considering mortgage refinancing (where you borrow more than your original mortgage amount — typically to set up a line of credit, consolidate debt or pay for home improvements) this will make a difference. Mortgage refinancing rates are usually a little higher than rates for a straightforward renewal.

Step 5 - Consider talking to a Mortgage Planning Specialist. They can offer expertise for not only securing the lowest rate possible, but also the important role a mortgage plays in your overall financial plan.

Step 6 - Start to negotiate mortgage rates with your lender. Once you’ve found a mortgage with a rate and conditions you like, talk to your financial institution and ask if they will match it.

If your current lender gives you a better offer, great! And if not, consider switching to a new one. Before you do though, clarify the costs involved in switching lenders. Then ask the new lender to cover those costs.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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