So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.
Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.
Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.
I could just initial the 5-year fixed rate — for the princely rate of 4.79%.
Honestly…I love it! It is great to see an article that does something other than kiss the rear ends of the chartered banks, who generally practice this policy of offering a poor rate on renewal.
Your friendly neighbourhood mortgage renewal
Why do they do this? The truth is that it works for them. They give you a good rate to get you in the door, and then they count on an industry statistic that has stated that generally 70% of mortgage holders just sign the renewal. That was the statistic I heard 5 years ago, although I am not sure if the number is still that high, I am sure many do just sign on the dotted line.
If the author of the article had informed them that he was leaving, they would surely do their best to keep him. However, it appears clear to me that if they make such a poor offer, they do not respect your business. If someone was getting me a much better rate, even if the bank offered the same or slightly better than I was getting elsewhere, I would still leave. Its a matter of integrity, and if you stay with them, then this business practice still works.
With most of my lenders, you will not get such a poor offer. They basically offer you the same rates on renewal that they offer us as mortgage brokers. That is not to say its the best on the market, but most of the time it will be reasonable and competitive. I have had clients who have hit hard times after I arranged a mortgage for them, and I could not qualify them elsewhere at renewal time. If they were with a chartered bank, they would likely have no choice but to sign the offer as presented. Luckily, I had them with a lender that gave them a good renewal offer and they benefited from competitive market rates.
This is a risk mitigation factor that goes beyond just a simple interest rate difference. In addition, my lenders have various other benefits that will save you money. See my mortgage broker vs. bank article for more information.