Clay Jarvis
Beth Buczynski
If you’re staring down the barrel of an expensive mortgage renewal, know that you don’t have to be held hostage by your current lender’s initial rate offer.
Many Canadians don’t seem to realize this. A recent Mortgage Professionals Canada survey found that 44% of mortgage holders accepted the initial rate offered during their last renewal. Only 8% said they “significantly” negotiated their renewal rate.
Negotiating your renewal rate is always an option. In the current economic climate, when rates are high and lenders are struggling with subdued mortgage demand, it’s a must.
“In this market today, where things are ultra competitive, all lenders, including [alternative] lenders, are open to having those discussions to negotiate better rates,” says Frances Hinojosa, CEO and principal mortgage broker at Toronto-based Tribe Financial Group.
Negotiating a better renewal rate isn’t difficult. Here’s how to do it.
Negotiating a lower renewal rate in 4 easy steps
Step 1: Consider your near-term goals
It may seem counterintuitive when rates are high, but your renewal shouldn’t just be a matter of scoring the lowest rate.
When your renewal approaches, evaluate your finances and near-term plans to determine what you need from your mortgage over the next few years.
Payment holidays, prepayment privileges, portability or a home equity line of credit (HELOC) are all features you might need depending on your goals for the next several years. The mortgage product that best meets your needs might not be available at all lenders. It might not come with the lowest rate, either.
Step 2: Talk to your current lender
Your lender will likely base your renewal rate on their posted mortgage rates, which are generally the highest rates available. There’s often room to negotiate when posted rates are in play, but don’t count on your lender to volunteer that information.
“I would never sign the first offer I get from the institution,” Hinojosa says. “I would talk with them and ask them, ‘What is the base bottom rate that I could get?’ Only when you ask those questions do you seem to open up the floodgates and get better discounts on your mortgage.”
Your lender, anxious about losing all that succulent interest revenue, might buckle immediately and offer the renewal of your dreams. But if the initial renewal offer only improves a little, keep looking. Tell your lender you’re going to see what else is available.
Step 3: Research other rate offers
There are generally two ways to track competing mortgage rates: on your own or with the help of a mortgage professional.
“[Homeowners] should do their homework to see what other options there are out there for the term they are interested in,” Kim Reddin, owner and managing partner at Centum Mortgage Partners in Charlottetown, said by email. “They can do that via online rate sites, etc.”
Researching rate offers is as simple as typing “best mortgage renewal rates” into Google, taking note of the most appealing offers and reaching out to the lenders or mortgage brokerages that provide them. A few hours might be all you need to track down a slew of appealing renewal options.
If researching rates sounds daunting, boring or confusing, you can also reach out to a mortgage broker to handle the comparisons for you.
Doing so could be particularly helpful if you arranged your current mortgage through a bank, whose mortgage advisors can’t discuss competitors’ products. Talking to a broker won’t violate your current mortgage contract or hurt your bank’s feelings. They’ll still take your money.
Step 4: Go back to your current lender
Once you’ve found an alternative rate offer you’d be willing to sign, return to your current lender for another round of negotiations.
If they decide to match the competing offer, congratulations. If not, advise them that you’ll be switching lenders and get started on your application with your new lender.
Is negotiating your renewal rate worth it?
A thousand times — yes. Depending on how negotiations go, your new renewal rate could result in tremendous savings.
“To give the most drastic example, if a client has a $300,000 mortgage coming up for renewal and their renewal agreement offered them the lender’s posted rates, they could end up spending $23,000 more over a five-year term than if they had negotiated to that same lender’s best 5 year rate,” Reddin said.
Not all savings will be that drastic, especially if your finances aren’t as robust as they were when you signed your current mortgage contract. The rate you’re ultimately offered will depend on your repayment history, the strength of your finances and your overall credit standing.
“Some lenders will still do soft credit checks behind the scenes,” Hinojosa says. “They’re also able to determine different loan-to-values very quickly on your property with all the data that’s available.”
Having a unique homeownership situation means your renewal rate may not be as attractive as your neighbour’s, even if you deal with the same lender. That’s okay. The goal is to reduce your renewal rate as much as possible.
Why don’t more Canadians negotiate their mortgage renewals?
Considering how many Canadians lose money by not negotiating their renewal rates, this may literally be a million-dollar question.
Reddin said it could be because some borrowers don’t know they can negotiate and “think they just choose a new term, sign and send it back.” Some may be uncomfortable negotiating in general, she said.
Hinojosa says another reason could be that some homeowners don’t typically think about their renewals as much as they do paying off their mortgages. Others, spooked by a barrage of renewal anxiety news, might feel that re-upping with their current lender is the only route available.
“There’s a big narrative out there that consumers are afraid they’re not going to requalify for their mortgage,” she says. “That fear puts hesitation into them — ‘Why bother even seeing what I can qualify for and what my options are?’ — and they simply just select the path of least resistance.”
That path, inviting as it seems, is really just a bee-line to higher mortgage costs.
It’s totally valid if you still feel tempted to accept — or frightened to reject — that first offer when renewing your mortgage. But ask yourself this: Who do you want your next mortgage term to benefit the most, you or your lender?
If it’s the former, negotiating is non-negotiable.
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