Renew (the mortgage industry meaning): to remain with the current lender by simply signing the renewal letter that comes in the (e)mail.
Switch (again, the mortgage industry meaning): to move from the existing lender to a different lender without leveraging any additional funds/equity; the outstanding balance remains the same.
Is renewing your mortgage with the current lender the best option, or should you consider switching to a new lender? The answer is provided with some simple math. As mortgage consumers, we want to save as much money as possible, plain and simple.
Seventy percent of borrowers that currently hold a mortgage simply sign the renewal letter they get. Most of the time they are leaving 20 â€“ 40 basis points or 0.20% â€“ 0.40% on the table. This puts millions of dollars back into the pockets of the lenders and their shareholders.
There are times when the current lender does not offer the best market rate or product for your situation. How will you know you are getting the best rate for your scenario? By contacting Dominion Lending Centres Mortgage Professional who works for youâ€¦ not the lender.
So first things first: contact your DLC Mortgage Broker four months before the term matures to discuss the next termâ€™s strategy. What do the next two, three or even five years look like? This will then lead to an interest-rate discussion. Can there be some money saved?
I have been working with a client over the past couple of weeks as her current mortgage is coming to maturity. Had she just signed at the bottom of the renewal letter she would have been overpaying by 30 basis points.
Current lender offered 2.84% for a 5-year Fixed term (Renew)
New lender offered 2.54% for a 5-year Fixed term (Switch)
Hereâ€™s what that looks like. Note the mortgage balance used was $330,000 (25-year amortization). This just happens to be the average mortgage amount in British Columbia.
Monthly Payment Annual Payment Payments Over 5 Yrs O/S Balance After 5 Yrs Interest Paid
2.84% $1,534.74 $18,416.88 $92,084.40 $281,194.12 $43,278.52
2.54% $1,484.87 $17,818.44 $89,092.20 $279,529.82 $38,622.02
Total Savings $49.87 $598.44 $2,992.20 $1,664.30 $4,656.50
The biggest saving is in the total interest saved over 5 years. At the end of the day this borrower saved $4,656.50. Guess what she decided to do? Yes, SWITCH lenders.
In this scenario, it will cost the borrower $0 to make a switch. Would you put four 1000-dollar bills, six 100-hundred-dollar bills, one 50-dollar bill, one five-dollar bill, one loonie and two quarters in the fire? No, you would not.
Bottom line, make sure you have a discussion with your independent Mortgage Broker before (potentially) burning thousands of dollars.
Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC.