Most banks boast a higher than 90% renewal rate on their mortgages (some even higher than 95%). They know that it costs them a lot more money to acquire a new client vs keeping an existing one. So you would think that they would offer you the best rate up front on your renewal as it’ll save them money in the long run? Well…not necessarily.
With renewal rates being as high as they are, there is not much incentive for banks to give their clients the best rates up front. They know that most people will stay as they know it’s easier to just sign a form as opposed to applying for a mortgage at another bank. Hence the dreaded renewal letter that gets mailed out automatically prior to your renewal date.
The banks would love nothing more than for you to just pick the term, sign the document, and send it back to them. It costs them relatively little to process it and don’t have to follow up with you after that (other than sending you a new copy of the agreement).
Since the renewal documents are printed automatically (and yes they may include a “preferred rate” which makes it even more tempting to sign) they don’t factor in any rate specials that may occur after they’re printed.
A client’s mortgage was coming up for renewal and received the automatic renewal letter. Just calling the 1-800 number saved them an extra .10%, which on a $500,000 mortgage was an extra $500 per year in interest. Not bad for a 5 min phone call.
There are also some important questions to answer:
-are you planning on selling your home anytime over the next 5 years?
-do you need to access any equity from your home for renovations, children’s education, etc.?
-what are your long term goals with the property?
These are important questions to ask as they help us suggest the right product for you.
So it’s important to treat your renewal as if you’re obtaining a new mortgage and spend some time researching your options. When I worked at a bank, I was always shocked at the number of people that just signed the form and sent it back.
That’s why (in addition to the financial institution where your mortgage is now) you need to contact your Mortgage Broker and have them give you an unbiased view of which mortgage product is right for you, as they have access to hundreds of different financial institutions.