How to Save Money at Mortgage Renewal Time

Spring and summer are by far the busiest seasons in the real estate market, followed by the fall. Consequently, many readers of this blog may have a mortgage renewal coming up in the next few months. This article is about the renewal process, the games that mortgage lenders play, and how to save money at renewal time.

First of all, it should be no surprise that banks are in the business of making money and no shock to learn that they use human nature to their advantage to increase their profits. When you understand that most mortgage profits are made in the 2nd and subsequent renewal terms, then you arm yourself with the knowledge on how to save money. This is because statistics have shown repeatedly that mortgage borrowers procrastinate and don’t shop around.  In fact, over 50% simply sign the bank’s renewal offer assuming it is fair without even a single phone call. Thus, you may get an initial renewal offer in the mail 0.50% to 1.75% above competitive mortgage rates currently available in the market right now. They offer this because it works to their advantage. Further, most lenders will wait until 30 days prior to renewal date to send you their renewal notice, hoping that the short notice prevents you from shopping around. That is how the game is played. If you want to be mortgage free faster, don’t leave your mortgage renewal to the last moment – determine the maturity date and write it on your calendar now.

Once you are within 4 months of your mortgage renewal date, there will be many mortgage lenders willing to compete for your business. At this point, I recommend borrowers first contact their current mortgage lender and ask about their renewal offers. If you like, drop a hint that you will be shopping around and encourage them to make their best offer. Next, you can access the broader mortgage market offerings through a licensed mortgage broker. Mortgage brokers deal with many lenders all competing for your mortgage business and are generally paid a commission by the lender, so there is no cost to you and little effort required on your part to learn about competitive mortgage offerings and to obtain some free advice.  

A couple of other things to remember: not all mortgages or mortgage lenders are the same – make sure your mortgage meets your current and future needs. In addition to the interest rate, look at and understand the features you may want in a mortgage, such as prepayment privileges or the option to transfer your mortgage to a new home. Don’t forget to consider your future plans – choosing the wrong term could cost you significantly if you have to break the mortgage contract. A transition to self-employment or potential divorce also needs forethought. Finally, recognize that your current mortgage lender will not tell you if a better mortgage product for your upcoming circumstances is available from a competitor. And they won’t likely tell you that transferring your existing mortgage to a different lender is - in most cases - cost-free. By being proactive, you can significantly reduce the life-time interest expense and shave years off your mortgage re-payment, improving your bottom line, not theirs. If you have questions, please contact me.

If you'd like, feel free to download our guide to Renewing and Renegotiating Your Mortgage 

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