Money & Career

How to get a better mortgage

By: Rob Carrick

Author: Canadian Living

Money & Career

How to get a better mortgage

By: Rob Carrick

Renewing a mortgage
Arranging a new mortgage is one of life's milestones. I mean, how often do you sign your name and immediately assume responsibility for a chunk of debt measured in six figures? Once, maybe twice, in a lifetime for most people, which is why this chapter starts off with advice on renewing a mortgage, something you could easily do half a dozen times or more until your home is yours, free and clear. Here's some math from a former bank mortgage executive that emphasizes how important the mortgage renewal is: as of mid-2006, the total amount of outstanding mortgages was worth roughly $660 billion, with about $80 billion of that representing new mortgages and the rest representing existing mortgages. Of that $580 billion or so in existing mortgages, about one-third ($193.3 billion) was up for renewal during the year. Given the rather immense amount of money being renewed each year, it's a surprise to hear from our former mortgage insider how many people sign and send back the mortgage renewal form sent to them by their banks, even though the rate being offered is not discounted at all. "If I told you how many people do this, you'd be floored," the insider said. "It's close to 30 per cent."

Would you buy a car and pay the price listed on the sticker on the window? If you pay your bank's off-the-rack mortgage rate, you're making the same mistake, but maybe five times worse (car: $30,000; mortgage: $150,000). Never -- repeat, never -- simply renew a mortgage without trying to arrange a better deal. In fact, mortgage renewals should be treated as an opportunity, not a formality. After living with whatever choices you made the last time you arranged a mortgage, you're now back in the cockpit with a chance to do better. Here's your game plan:

1. Research the market: Find out where mortgage rates are, and where they're expected to go. Then, see what deals lenders are offering.

2. Call, e-mail, or visit your lender: Who knows, you may be offered a great deal right off the top, thus ending the renewal process. Failing that, get your lender's best offer and go elsewhere to see what you can do to beat it. And, yes, you can conduct mortgage negotiations by e-mail. I once renewed my mortgage through an exchange of e-mails over several days with a mortgage rep at one of the banks I patronize. We never met face to face.

3. Choose your lender: It's always easiest to keep your mortgage where it is, so give your bank one last chance to hang on to your business. Frankly, the convenience of staying put is probably worth an incrementally higher interest rate.

If your current lender won't deliver the rate you want, then you'll find other banks, credit unions, and mortgage brokers eager to win your business. Often, they'll demonstrate their eagerness by absorbing any legan and administrative costs involved in transferring your mortgage (these could add up to several hundred dollars otherwise). As well, your existing lender may charge a mortgage discharge fee of $150 to $250. Be sure to ask your new lender to pick up the tab -- remember, it's competitive out there.

Page 1 of 2 - Read page two to learn about sneaky mortgage scams


Excerpted from How to Pay Less and Save More For Yourself by Rob Carrick. Copyright 2006 by Rob Carrick. Excerpted by permission of Doubleday Canada, a division of Random House of Canada Limited. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.


The ideal mortgage
If you want a quick and easy-to-follow guide to the ideal mortgage, try a book called The Perfect Mortgage by real estate lawyer Alan Silverstein. I've been consulting Alan for more than 10 years for stories and columns on mortgages, and he's great at explaining mortgage technicalities in a simple way. For me, though, an ideal mortgage is simply one that comes with the lowest possible interest rate for the term you want, be it variable rate, six-month, five-year, or ten-year. Sure, there are other factors, such as your ability to pay down the principal and portability (transferring the mortgage when you move to a new home). But if you had to isolate one single measure that makes a mortgage more bearable, it would have to be a low rate.

Low rates are within your grasp
There was a time not too long ago when only a display of negotiating virtuosity got you a discount of a full percentage point on your fixed-rate mortgage. Today, these deals are so commonplace that you'll find banks promoting them in flyers enclosed with your daily newspaper. Forget negotiating or having a "relationship" with the bank in question -- these specials are open to anyone with a pulse and a decent credit rating.

Example no. 1: Toronto-Dominion Bank's TD Canada Trust branches offered a special 4.99 per cent on five-year mortgages in one recent spring, which compared to a posted rate of 6.05 per cent. "...Save with our special mortgage offers," a TD flyer said.

Example no. 2: Canadian Imperial Bank of Commerce has in the past had a "Better Than Posted" mortgage product that offered a large discount of up to 2.01 percentage points for the first nine months and then a smaller discount of up to 1 point for the remainder of the term. "This is a fixed-rate mortgage that gives you guaranteed rate reductions on our posted rates -- without having to negotiate!" CIBC's website said.

Example no. 3: Royal Bank of Canada's website not too long ago had a section headlined "Our Best Offers," where you could find details on a five-year 4.99-per cent mortgage available for a limited time. The posted rate at that time was 6.05 per cent.

While there's no question that banks have become a lot easier to deal with if you need a mortgage, you still require some savvy to get the best possible deal. Here are some key points:

Don't be awed into submission by special deals, because they're not the last word on pricing. If you have a good relationship wtih your bank, don't hesitate to ask for a little extra discounting. You'll have more leverage if you're seeking a long-term mortgage of five years or more, and if the closing date for your home purchase is near at hand. With today's interest rate volatility, banks may be less willing to commit to a super-low rate on a mortgage they won't actually fund for a couple of months.

Don't put any stock in posted mortgage rates, even though all banks have them. Posted rates sometimes differ from bank to bank, but they're just trivia. Discounted real market rates are where it's at.

Teaser rates -- super-low rates that apply only for the first few months of your mortgage and then convert to a higher rate -- generally qualify as flim-flammery. If you analyze these deals, you'll generally find that it's better to negotiate your own discount.

• It's illegal for banks to require that you bring them a certain piece of business if you want to get a mortgage -- this is called tied selling -- but they may be more willing to offer the rate and terms you want if you give them, say, an RRSP account. If you're willing to do something like this to cinch a mortgage deal, go ahead. But don't make any changes that will hurt you financially or cause undue hassle. Remember, there are many banks, credit unions, trust companies, and mortgage brokers you can approach if your bank won't give you the deal you want.

Read "We're 31 and we paid off our mortgage"

Page 2 of 2


Excerpted from How to Pay Less and Save More For Yourself by Rob Carrick. Copyright 2006 by Rob Carrick. Excerpted by permission of Doubleday Canada, a division of Random House of Canada Limited. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.


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How to get a better mortgage