A couple weeks ago I received a letter from my mortgage lender with a letter offering an early renewal of the mortgage. The mortgage renewal date is still 6 months away, so I still have plenty of time before I need to start thinking about what term I would like.
My mortgage lender is a big bank and they seem to make it so tempting – all I have to do for the early renewal is call them and set up an appointment to visit one of their branches. It’s really convenient for me – there is a branch less than 10 minutes walking distance from my house.
After I go to the appointment and sign the papers everything else is handled for me. It’s a simple renewal with no changes or refinancing so it can all be done in 30 minutes or less (or so they say).
But this convenience comes with a cost – the rate is higher than almost all other rates advertised online. I’m a self-professed numbers guy and the numbers were ugly. Why would I renew at a significantly higher rate when I could wait it out for a much better one elsewhere? Since rates are going down time is in my favor.
Pros to an Early Renewal
- Time. The biggest benefit of renewing early is that I can spend 30 minutes or less and have the entire process handled for me. If I didn’t switch lenders I wouldn’t need any other process like an application or appraisal. 30 minutes is all it would take for me to renew
- Convenience. Since my lender is a big bank I could login to my account any time to see my mortgage balance, terms and any other information. They’re also very close to my house. It really doesn’t get more convenient
- Savings (on current term). Even though the renewal rate is higher, an early renewal would mean I could save for the next 6 months since the new rate offer (2.44%) is lower than my current rate (2.60%) and there are about 6 months left to go on the original term
- Straight forward legal jargon. Since I am already familiar with the mortgage and all the fine print there wouldn’t be any other new stuff I would have to worry about like an extra penalty, additional restrictive clauses, etc.
- No extra costs to switch. If I switch to another lender there may be some costs involved which could significantly decrease the savings from a lower rate
Cons to an Early Renewal
- No chance to shop around. Renewing now would mean I wouldn’t get the chance to shop around to find an even lower rate. Since rates are currently going down, shopping around would actually be fun – lower rates means I can save even more.
- Higher overall cost. I’m interested in the 3 year fixed rate and their offer of 2.44% isn’t anywhere near the 2.08% I see advertised online. An early renewal would cost me an extra $3,383 in interest over the 3 year term.
- Loyalty is costly. Just like regular bank account offers, it seems like my bank isn’t really giving me any incentive to stay with them. A 2011 Bank of Canada paper found that loyal customers may not be getting as good of a deal as new customers
- Better explanations. A mortgage broker would work to find the best mortgage for me and explain all the fine print, whereas my bank would be more inclined to sneak it in there. I’m more comfortable working with a broker who has my best interests in mind
Potential Costs of Switching
There are some costs to switching lenders that I would have to consider. Legal and appraisal fees would apply if I was refinancing or changing the names on title, but I am not so they aren’t applicable to me.
Refinancing could also lead to some costs as well but again – not applicable to my situation.
I’ve read that some lenders have hit borrowers with a discharge fee of anywhere from $50-300. Luckily I checked with my bank and they don’t charge this fee, but others may.
The Globe & Mail recently reported that 6 out of 10 borrowers renew their mortgage early.
My plan is to mention the lower rates to my bank and see if they’re able to match them. I’ll also mention the fact I’ve been a perfect client with no late payments or any other issues they would consider high risk.
I am hoping I can use these things to get a better offer. If it doesn’t work I have no problem waiting it out to shop around and find the best rate available – even if it means switching to another lender.
My bank isn’t loyal to me, so I don’t plan on blindly giving them my loyalty without shopping around first.
Have you considered an early mortgage renewal? Why or why not?