According to a report released by Manulife, more than three quarters of respondents indicated that becoming debt-free is a top priority. Currently, Canadian consumer debt is at an all-time high and mortgage debt represents most of it. Since the interest owed on a mortgage is huge, it should be in your best interest to reduce mortgage debt as best as possible.
There are many different ways to save money on your mortgage. The simplest and easiest method is to compare Canadian mortgage rates to find the lowest rate possible. So, why are two-thirds of homeowners, according to the Manulife survey, NOT comparing mortgage products at renewal?
The Law of Convenience states that every additional step that stands between people’s desires and the fulfillment of those desires decreases the likelihood that they will undertake the activity. The home owners who simply sign their banks renewal letter must find it convenient that their banks are making it easy for them to renew their mortgage. The problem is – this “convenience” will end up costing them thousands of dollars in interest because the bank renewal letter will contain a less-than-optimal mortgage rate.
The reasoning behind this “convenience” is based on a few misconceptions about the ease of comparing mortgage rates and how banks treat customer loyalty.
Misconception #1: Comparing mortgage rates is time consuming
Ratehub.ca already compiles mortgage rates for you, from all the major banks and brokerages across Canada. From the best mortgage rates page, you can scroll through the various mortgage products, from fixed to variable including current HELOC rates. There’s no need to ask each individual lender what their current rates are since we do that for you. To compare current rates requires only a couple of clicks of the mouse.
Misconception #2: My bank will take care of me
Banks will take care of their bottom line because they are a business. They understand “the path of least resistance” and capitalize on it with their customers. The mortgage rate offered on bank renewal letters will never be the lowest rate available to you.
Misconception #3: I’m already getting the best rate
Lenders are counting on that line of reasoning and assume home owners are too busy or can’t be bothered to secure a better rate. Mortgage rates change daily so it’s never safe to assume you have the best rate unless you have a baseline to compare against.
Misconception #4: Signing the bank’s renewal letter is convenient
This is actually is true. The problem is that it doesn’t make financial sense. Why pay hundreds or thousands of dollars more for something convenient? Especially when comparing mortgage rates online is just as, or more convenient.
Saving money should be the primary reason for comparing mortgage rates during renewal. However, there are other factors that you should consider which may lead you to change more than your mortgage rate. Your current situation may not be the same as when you originally applied for a mortgage. Perhaps your income has changed dramatically or you switched careers. Maybe this time around you’re looking for extra options to finance a home renovation or fund a vacation. If you feel more financially secure, you may find it beneficial to switch to a variable rate based on your current situation.
If you put forth the effort to educate yourself about mortgages when you first applied, the renewal process should be treated no different. So, the next time a renewal letter comes in – DON’T SIGN IT. Look at the rate your bank is offering you and then compare it to other market rates. Every little bit counts, a difference of a few percentage points might not look like a lot, but it could end up saving you hundreds or thousands of dollars in interest payments.