If your mortgage is coming up for renewal (i.e., you’re nearing the end of your mortgage term), you may have to play hardball during negotiations.
With purchase volumes down over 30% following the COVID-19 outbreak, less-competitive lenders have been trying to make up for lost profit by targeting renewals. And some are making inferior offers as high as posted rates!
Case in point: Here’s a renewal offer that one well-qualified client sent us a few weeks ago. Note how the five-year fixed offer rate is 5.34%. The best conventional rates at the time were 2.44%, almost three percentage points lower!
The playbook used by such lenders goes something like this:
- Offer the renewer a poor rate by mail or email
- Wait for the borrower to either accept it or call asking for a better deal
- If the customer calls, quote them a lower rate (but not the lowest rate they can offer, knowing that people don't like the hassle of switching lenders)
- See if the customer accepts
- If not, and if the customer threatens to leave, offer a slightly lower rate or call the customer's bluff
- If the customer gets approved elsewhere, call the customer as soon as the new lender/lawyer requests a payout statement (which is a letter that spells out the terms that must be met to release the borrower from the loan obligations)
- Offer a miraculously competitive deal and shower the customer with love and adoration, telling them how much the lender “appreciates their business” and thanking them for being such an “important client”
It's a sequence that plays out literally every business day in this country.
If you don’t have time or patience for this elaborate song and dance, and simply want the best mortgage rate at renewal, try this instead:
- Tell your lender you have spent hours researching the best deal at all lenders on Rates.ca
- Tell them they have one chance and to put their best foot forward on their rate offer
- Use this rate comparison calculator to compare the lender’s rate to what you can get elsewhere for a similar or better mortgage
- Total up the costs and benefits of switching to a new lender and determine if the math is in your favour
- If it is, and your lender doesn't offer a great rate in good faith, leave them in the dust
This assumes you’re reasonably well qualified and won’t have any issue passing the government’s “stress test,” which you’d have to pass if you switch lenders at renewal.
Calling Your Lender’s Bluff
When your lender finally realizes that you’re actually serious about taking your business elsewhere, don’t be surprised if it does a 180 and turns into your best friend.
Once the discharge is requested, lender retention departments frequently offer to match the other deal you secured, in an attempt to steal you back. That would be great if it weren’t for the fact that it forced you to expend all this extra effort to get that lower rate.
This routine is standard procedure at so many lenders. And it shows bad faith. After all, you’ve already given your lender the opportunity to reward your loyalty and win your business. Why should they make you go through the hassle of having to search for a competitive rate, contact a new lender, submit an application elsewhere, and provide documentation to the new lender?
If your lender waits until you've jumped through all those hoops and requested discharge of the mortgage before they offer you a solid deal, they've proven how much they really care about you. In fact, they've proven they have no problem wasting your time and the time of others (like the party who offered you a better rate upfront in good faith).
If your existing lender does all this, tell them to take a hike when they phone you at the last-minute grovelling for your business.
It is time lenders learn that their customers’ time and loyalty are valuable. The best way to remind them is to not reward them when they try to woo you at the 11th hour.
