Well folks I just do not get it. I do not understand why smart person after smart person continues to sign on the dotted line for the first offer they are given upon mortgage renewal. Case in point that has brought this to a head for me was just a couple weeks ago. The mortgage was with one of the beloved big 5 banks whom we Canadians seem to hold in great awe and respect. Here is what it looked like:
Mortgage amount $259,997 in a new 5 year fixed rate term with a 20-year amortization at 4.10% making the monthly payment $1584.51 and the balance after 5 years $213,266.26.
I know for a fact that the SAME bank and many others were offering 2.59% for the exact same term. This is how that would have shaken out:
Mortgage amount with a rate of 2.59% in a 20-year amortization would have had a monthly payment of $1,387.40 and the balance at the end would have been $206,956.55.
That means that the client could have saved $197.11/month or $11,826.60 over the 5 years. On top of that is the crazy fact that they would have also owed $6,309.71 LESS at term maturity. $18,136.31 is the amount that this one person could have saved. That is one person out of a very large number of people doing the exact same thing so I must loudly repeat – Stop it!!
Let us examine the facts for a moment shall we?
1. Banks are a business and they are mandated to generate a profit for their shareholders and investors. Though success seems to have become a dirty word, this is actually a good thing for our economy. Our banks are strong and continue to report profits. A secret of the banking world that you need to be aware of is that the person you are sitting down with may receive a commission or a bonus based on how many mortgages they sign at the higher rates. I repeat that I do not have any problem with profit. I myself am commissioned based. What does concern me is the fact that the average consumer does not know this may be occurring on their transaction which may lead a them to make a choice without questioning their options.
2. The average consumer will shop 3 stores and visit many websites to save on big ticket purchase such as a TV or a car. Once they get to the dealership they will negotiate and play the game to get the best price so why do we not when it comes to our largest asset? Why are we not ensuring that we are not overspending $18,136.31?
3. There are a large number of lenders and banks in our country to choose from. They are solid institutions offering great mortgages to consumers. Research them and make an informed decision before dismissing them as unreliable. They too are watched over by the powers that be who work diligently to protect your rights as consumers.
4. There are so many well qualified mortgage professionals from Dominion Lending Centres who live and work in your community. Find one you like and have them find your best option if the whole thing seems like too much work.
Did you know that to switch your mortgage to a new lender at renewal, you will not incur a penalty, or pay legal fees or appraisal fees? It will probably take about 4 hours all together, which in the examples I used, works out to $4,534.08/hour. That is pretty substantial hourly wage and certainly worth your time.
So stop it and save your money.